ASX:PWH
PWR Holdings Ltd
Investment Summary
The fund managers believe that PWR Holdings Ltd (PWH) is a leader in cooling technology, primarily serving the automotive and aerospace sectors. Although PWH has shown consistent organic growth, recent downgrades have raised concerns. In their opinion, revenue could drop by 3.6% year-over-year for 1H FY25, following significant impacts from relocating their Gold Coast manufacturing facility. Notably, the OEM division’s revenue is expected to decline by 44%, attributed to the cancellation of Electric Vehicle contracts amid a slump in global demand. This shift has prompted some fund managers to reduce their investments in PWH, though they remain optimistic about potential growth in the aerospace sector. The upcoming years are deemed transitional, and despite the challenges, the fund managers emphasize that the CEO’s significant ownership suggests confidence in long-term returns. They stress the importance of PWH establishing a foothold in the defense and aerospace markets, especially in North America, to secure future growth.
Commentary From The Managers
Naos Asset Management
31 Dec 2024
$7.86
- Naos Asset Management notes underwhelming guidance from PWR Holdings Ltd (PWH) for FY25, with a subsequent downgrade impacting outlook.
- Revenue is projected to decline -3.6% YOY for 1H FY25, with NPAT expected between $3.2-$3.7 million compared to $9.8 million in 1H FY24.
- Downgrade influenced by costs related to relocating their major manufacturing facility on the Gold Coast.
- Concern arises from weak performance in the Original Equipment Manufacturer (OEM) division, with anticipated revenue drop of -44%.
- PWH has no active OEM contracts related to Electric Vehicle (EV) products following cancellations of several contracts.
- Global demand for EVs has decreased due to consumer issues like high costs and poor infrastructure.
- Some manufacturers, including Volkswagen, are consolidating operations due to the decline in EV demand.
- PWH anticipates strong medium to long-term demand for aerospace products, evidenced by 67.1% revenue growth in 1H FY25.
- FY25 and FY26 expected to be transitional years due to facility upgrades.
- Naos Asset Management has reduced its investment in PWH to reallocate capital towards more promising opportunities.
- Continued observation of PWH’s potential in the defence and aerospace market, particularly in North America.
Naos Asset Management
30 Sept 2024
$9.05
- PWH is a leader in cooling technology for automotive and aerospace applications.
- They supply cooling equipment to all but one Formula One team.
- All products are manufactured in company-owned sites in Australia, the UK, and the US.
- PWH has scaled at a rate of 10-20% p.a., necessitating facility expansions.
- Plans for a larger, purpose-built facility in Gold Coast were outlined during FY24 results.
- Expect minimal or negative profit growth in FY25 due to relocation complexities.
- Company is currently trading at a P/E multiple of >30 times, leading to significant share price reactions.
- Despite short-term impacts, PWH has a track record of consistent organic growth and high returns on invested capital (ROIC).
- The founder and CEO, a majority shareholder with >10% ownership, supports the long-term project.
- Transition to electrification is expected to increase demand for advanced cooling equipment.
- Naos Asset Management continues to hold due to PWH's positioning to secure significant contracts.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.