Company Reports

PWR Holdings is poised for continued growth in advanced cooling. We expect PWR's strong earnings growth to continue, principally driven by its competitively privileged position in high-performance automotive cooling. PWR's narrow economic moat is underpinned by the significant brand equity, intellectual property, and entrenched customer relationships it enjoys in this niche market. The company has a presence across practically all major motorsport competitions—notably Formula One, where PWR supplies every car on the grid. These competitive advantages also allow PWR to command top-tier aftermarket pricing and position itself as a trusted supplier for high-performance, low volume production of supercars and hypercars with vehicle manufacturers.

Principally, two factors steered PWR’s fiscal 2024 result to be worse than expected: slower revenue growth in motorsport and sharply higher employee expenses. The underlying net profit of AUD 25 million was a 10% improvement on fiscal 2023 but about 10% below our prior estimate. Employee costs were 21% higher, about AUD 3 million higher in the second half than the first. There is more to come in fiscal 2025 as the business ramps up hiring ahead of a significant step-up in the aerospace and defence work from fiscal 2026. We lower our fiscal 2026 net profit forecast by 18% to AUD 27 million—primarily due to higher employee expenses and a softer near-term outlook. However, we make only minor adjustments to our longer-term forecasts as revenue catches up with the higher cost base. We maintain our AUD 9 fair value estimate as the time value of money offsets the near-term downgrade.

Shares in PWR Holdings are expensive compared with our unchanged AUD 9.00 fair value estimate. Granted, PWR is a high-quality company, with a narrow economic moat underpinned by significant brand equity, intellectual property, and entrenched customer relationships. The firm has carved a formidable position in the high-performance automotive cooling niche, with a presence across practically all motorsport competitions—notably Formula One, where PWR supplies every car on the grid. This position also allows PWR to command top-tier aftermarket pricing and position itself as a trusted supplier for high-performance, low-volume production of supercars and hypercars with vehicle manufacturers.

PWR Holdings is poised for continued growth in advanced cooling. We expect PWR's strong earnings growth to continue, principally driven by its competitively privileged position in high-performance automotive cooling. PWR's narrow economic moat is underpinned by the significant brand equity, intellectual property, and entrenched customer relationships it enjoys in this niche market. The company has a presence across practically all major motorsport competitions—notably Formula One, where PWR supplies every car on the grid. These competitive advantages also allow PWR to command top-tier aftermarket pricing and position itself as a trusted supplier for high-performance, low volume production of supercars and hypercars with vehicle manufacturers.

We lift our fair value estimate for shares in PWR Holdings by 6% to AUD 9 following the release of interim fiscal 2024 results. Net profit after tax lifted 26% on the previous corresponding period, or PCP, to AUD 10 million. The result was driven by robust growth in aerospace and defense, which increased segment revenue by 124% as the size and number of contracts continued to increase. Motorsport revenue increased 19%, still the majority of revenue, as demand for emerging technologies like cold plates for battery cooling was strong. PWR Holdings has carved a formidable position in high-performance automotive cooling, with a presence across practically all motorsport competitions—notably Formula One, where PWR supplies every car on the grid. This presence underpins PWR’s narrow economic moat. We expect earnings to remain second-half-weighted, given the seasonality of motorsport. We lift our fiscal 2024 NPAT forecast by 4% to AUD 28 million, about 23% higher than the PCP.

We initiate coverage of PWR Holdings with a fair value estimate of AUD 8.50 per share, implying a fiscal 2024 P/E of about 32. At current prices, shares screen as expensive. Granted, PWR is poised for a continuation of considerable growth in advanced cooling, headlined by continued success in motorsport, further wins of low-run, high-performance vehicle manufacturer contracts, and continued growth as a supplier to defense prime contractors. PWR has a healthy pipeline of OEM contracts, with high-end, low-volume production of vehicles like the Aston Martin Valkyrie and Rimac Nevera, and a strong pipeline of production and prototyping with prime defense contractors. But we think the market is overly optimistic on its still relatively nascent foray into aerospace and defense, where we think its competitive position is not nearly as strong as it is in automotive.

PWR Holdings is poised for continued growth in advanced cooling. We expect PWR's strong earnings growth to persist, principally driven by its competitively privileged position in high-performance automotive cooling. PWR's narrow economic moat is underpinned by the significant brand equity, intellectual property, and entrenched customer relationships it enjoys in this niche market. The company has a presence across practically all major motorsport competitions—notably Formula One, where PWR supplies every car on the grid. These competitive advantages also allow PWR to command top-tier aftermarket pricing and position itself as a trusted supplier for high-performance, low volume production of supercars and hypercars with vehicle manufacturers.