Peter Warren Automotive: Conservative but forward order book remains strong

About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Former Senior Analyst
Date posted:
30 August 2021, 10:00 AM
Sectors Covered:
Consumer Discretionary (Retail)

  • Like most auto groups, PWR experienced a strong FY21, significantly exceeding prospectus NPBT forecasts by 68%. 
  • Bolt-on acquisitions (4) have commenced since IPO, however we think the company also remains focused on a larger prize. PWR has A$43m of net cash providing ample flexibility in this regard. 
  • With PWR’s exposure limited to NSW and QLD, lockdowns in the former have impacted trading into 1H22. The company has therefore reiterated its prospectus 1H22 forecast which represents 43% contraction vs 2H21.  
  • PWR’s outlook commentary was in stark contrast to peer, Eagers Automotive. We acknowledge APE’s overweight exposure to QLD/WA vs NSW for PWR. We also expect conservatism is playing a part in the group’s first 12 months post IPO. 
  • Add rating maintained; (login to view price target).

Event: FY21 result 58% above prospectus forecast

In line with recently provided guidance, PWR reported pro-forma NPBT of A$75.7m in FY21. Compared to original prospectus forecasts, revenue beat by 6% while material margin expansion saw NPBT beat by 68%.  

Key growth drivers/rates: revenue +18% (new/used sales +23%/+8%); GM +200bp (to 18%); CODB -100bp; EBITDA +118%; NPBT +378%. Particular strength in demand was noted in May/June, while supply constraints continue to support margins. 

PWR exited FY21 in a A$43m net cash position.

Outlook : Lockdowns bite ST

PWR noted the lockdowns have impacted trading in NSW and, to a lesser extent, QLD, during 1Q22.  

PWR  therefore  reiterated  the  1H22  NPBT  forecast  included  in  its  prospectus (A$28m), assuming lockdowns persist beyond the end of September. This would represent a 43% fall on the A$48.8m achieved in 2H21 and a relatively flat outcome vs 1H21.  

However, the group’s forward order book remains strong, exiting July in a similar position as it exited June (60 units apart). We therefore see lockdowns as pushing out earnings as opposed to earnings completely lost.  

Pleasingly 4 acquisitions have been executed since IPO and within the historical multiple range of 4-6x PBT. These acquisitions are modest in scale and we expect the prize ultimately lies with larger acquisitions (A$400-600m turnover).

Forecast and valuation update

It has been a reasonably wild ride for our forecasts since IPO, with the company exceeding IPO forecasts by 68% and lockdowns now impacting ST (we lower our FY22 forecasts by 16%).

Investment view

PWR’s solid net cash position provides ample flexibility for potential acquisitions going forward. The group also boasts strong asset backing (A$229m), representing c40% of its current EV.

Based on our current forecasts, PWR is trading on 13.5x FY22/FY23. Our forecasts include a reasonable re-basing of earnings off FY21 levels. We also not that accretive acquisitions of scale have the potential to move the dial materially.

Price catalysts

AGM (October): PWR has stated it will provide a further trading update/update guidance at its AGM.

Risks

Downside:  COVID-19,  regulatory  risk,  inability  to  identify/integrate  acquisitions (key  growth  pillar),  supply  outpacing  demand,  deteriorating  consumer sentiment/house prices (downturn in car sales). 

Upside: continued demand strength (outstripping supply); M&A.

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