Small Caps | Feb 21 2023
This story features PWR HOLDINGS LIMITED. For more info SHARE ANALYSIS: PWH
Future-focused PWR Holdings spends big on first half investment, but should see a pay off in the second half as the company’s aerospace and defence division finds its feet.
-Subdued first half sees PWR Holdings report just 2% earnings growth for the period
-Aerospace and Defence delivered growth of 204%
-Company invests in new facility in the UK and expanding manufacturing in the US
By Danielle Austin
A subdued earnings result in the first half is likely indicative of PWR Holdings’ ((PWH)) confidence in an emerging pipeline and the longer-term opportunities it represents, with the company continuing to invest in laying the groundwork for significant revenue growth in the second half, and beyond.
PWR Holdings is a global provider of cooling solutions, with its core offerings including aluminium radiators, intercoolers, heat exchangers and oil coolers. The company primarily offers solutions to the motorsports sector and original equipment manufacturers (OEM) but with an expanding presence in aerospace, defence and emerging technologies.
The company reported earnings growth of just 2% over the first half, alongside revenue growth of 15% to $52.6m. The result comprised 6% growth from motorsports, 15% growth from aftermarket and 24% growth from OEMs, while emerging technologies remained a standout with 31% growth, bolstered by 204% growth in the aerospace and defence category.
The company’s aerospace and defence segment remains a key opportunity for future growth, according to UBS (Neutral, target $10.75). The broker sees sizeable potential in the segment, despite revenue disappointing in the first half.
UBS highlights this segment remains at a relatively early stage but medium-term opportunity continues to grow, with the company reporting growth in existing and new aerospace and defence programs in the half. PWR Holdings continues to expand its manufacturing facilities in the United States to ready itself for future opportunity.
UBS expects securing larger contracts in the sector would help justify the current market valuation. PWR Holdings already typically has a strong second half revenue and margin skew, and the broker expects FY23 will prove no different.
Motorsports timing underpins first half miss
Morgans (Add, target price $12.05) found the first half earnings result to be a -10% miss to its forecasts, noting earnings were additionally impacted by timing delays on revenue from the motorsports division, where revenue has been pushed to the second half. According to company commentary, four of the major Formula One teams requested product be booked out in January instead of December to meet yearly cost caps. Adjusting for this delay, the broker expects the miss would have been a more palatable -2%.
Morgans expects securing a manufacturing facility in the United Kingdom as the intended centre of European operations, a further effort at preparing for future growth, will support expansion in the region and relieve pressure on Australian operations. Manufacturing at the facility looks to commence in March, ramping up to deliver solid revenue and earnings by the fourth quarter.
Moelis (Hold, target price $10.80) similarly found the result in line after adjusting for the motorsports timing issue. This broker highlighted company commentary suggests a material contract with an aerospace and defence customer emerging in coming months, which it feels would lend the company added credibility outside of automotive markets.
Bell Potter (Hold, target price $11.00), meanwhile, noted pipelines appear strong across sectors, noting the size of the company’s new United Kingdom facility suggests it anticipates sizeable opportunity.
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