Peter Warren Automotive: Rolling over the lockdown bump
About the author:
- Author name:
- By Scott Murdoch
- Job title:
- Senior Analyst
- Date posted:
- 28 October 2021, 8:00 AM
- Sectors Covered:
- Diversified Financials, Professional Services
- Peter Warren Automotive (ASX:PWR) upgraded 1H22 NPBT expectations to A$32-34m (from its A$28m prospectus forecast). 1H22 (mid-point) is +23% on the pcp and down 32% on 2H21.
- PWR noted QLD results have been above expectations, and NSW customer activity is encouraging post lockdowns lifting. The order book at Sept-21 is higher vs June-21, setting up for a stronger 2H22 performance.
- Vehicle supply poses some short-term risk, but supply dynamics should improve through CY22. Medium-term gross margin outcome will remain one of the key areas of focus into FY23+.
- The consolidation opportunity for PWR provides a runway for meaningful growth and PWR has the balance sheet capacity to execute on it. Trading on ~10.6x FY22F and ~12.7x FY23F (assumed margin contraction), we maintain an Add rating.
Event: 1H22 guidance solid given lockdown impacts
PWR provided updated 1H22 guidance, upgrading previous (prospectus) expectations of A$28m to A$32-34m. PWR had previously maintained a conservative position in Aug-21 given lockdown uncertainties.
The group stated that 1Q22 results for QLD were stronger than expected and demand in both QLD and NSW has remained strong. Deliveries in NSW have clearly been impacted by lockdown restrictions, which have now eased (show rooms open as of Mid-Oct).
PWR’s order book at Sept-21 was above June-21 levels (not quantified). PWR noted that uncertainty around vehicle supply remains (some marginal risk to 1H22), but we expect this to improve through CY22.
PWR’s higher order book and the end of lockdown restrictions in NSW set the business up for stronger 2H22 performance.
Consolidation remains the longer-term driver
PWR is in the process of securing a A$96m debt facility (secured against the Warwick Farm property assets) to support the growth strategy. As at June-21, PWR had no corporate debt and net cash of ~A$43m.
The group noted there is a ‘positive’ pipeline of opportunities with vendor pricing expectations consistent with previous acquisitions.
Forecast and valuation update
We upgrade FY22 EPS by 18.8%. We forecast FY22 PBT of A$70.6m, implying 2H22 PBT of ~A$37.5m. This may prove conservative (depending on supply/deliveries) given the A$48.8m PBT delivered in 2H21.
Our outer year forecasts are relatively unchanged (+/- 1.2%), which factor in gross margin contraction as supply conditions improve.
Our PE/DCF valuation moves to (login to view price target). Our PE valuation is rolled forward to FY23 EPS.
Add maintained. Whilst we expect elevated gross margins to contract at some point (forecast from FY23, but this may push further out), we see the consolidation opportunity as providing a solid runway of growth.
Based on our current forecasts, PWR is trading on ~12.7x FY23. Our forecasts include a reasonable re-basing of earnings from FY21/22 levels. Accretive acquisitions of scale have the potential to move the dial materially, which are not factored into our forecasts.
PWR’s balance sheet position (net cash and ability to gear against ~A$230m property portfolio) provide the capital capacity to execute.
1H22 result – further detail around the forward order book, M&A pipeline.
Downside: supply outpacing demand, deteriorating demand/consumer sentiment/house prices (downturn in car sales), deterioration in supply impacted demand and delivery, industry model operating changes, inability to identify/integrate acquisitions (key growth pillar).
Upside: continued demand strength (outstripping supply); M&A.
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