Peter Warren Automotive Holdings Limited

PWR Details

Peter Warren Automotive Holdings Limited (ASX: PWR) is an automotive dealer providing a range of new and used vehicles. It operates dealerships in Sydney, Northern New South Wales, and Southern Queensland. It offers various brands and provides aftermarket products and services such as insurance, etc. PWR is a recent debutant in ASX which was listed on April 27, 2021.

 Stellar H1FY22 Performance:

• Despite supply chain drawbacks, PWR posted 4% revenue growth in H1FY22 to reach $778 million. Push to agency business model by automotive OEMs added $12 million impact on H1FY22 revenue.
• The company’s omnichannel initiatives and increased geographic footprint enhanced its topline growth. Its order book as of December 31, 2021, is up 97% from the previous year.
• The acquisition of Penfold Motor Group for $106 million in December 2021 helped to gain a foothold in Eastern Seaboard and provides a scale advantage in the Victorian market. Penfold Motor had contributed revenues of $28.9 million and PBT of $1.3 million in H1FY22.
• Its EBITDA witnessed a 28% jump led by increased investment in digital capabilities and efforts to diversify brands. Its underlying EBITDA margin reached 6.9% in contrast to 5.6% in H1FY21.
• Its PBT showcased astonishingly 35% growth to $36.3 million.
• Despite a $3 million increase in capex owing to property acquisition at Southport, PWR reported operating cash flow of $48.6 million in H1FY22, up from $33.7 million posted in the prior year.
• It had secured a $96 million 10-year secured debt and external borrowings were partly drawn to fund the Penfold Motor acquisition. It had net debt of $31.9 million as of December 31, 2021, as compared to net cash of $42.9 million as of June 30, 2021.
• The company was inaugurated with the first interim dividend of 9 cents per share. This reflects a payout ratio of 65% of NPAT, in-line with the target of 60%-70%. The interim dividend will be paid on March 31, 2022.

Key Financial Highlights (Analysis by Kalkine Group)

Key Risks: The operations of PWR were impacted by the delay in shipments and scarcity of parts during the lockdown. The switch to agency model by the industry is expected to wipe out $100 million from its FY22 revenues. Changes in buying behaviour may affect volume offtake.

Outlook: With strong order book growth and strong underlying demand expected, PWR is optimistic about the substantiality of earnings for the full-year FY22. Well-diversified geographic reach and varied brands help to mitigate the downward pressure in new vehicle margins. Besides, Penfold Motor Group, PWR is looking for acquisition opportunities to consolidate its presence in the highly fragmented industry. PWR is streamlining its operations with a 100-day integration plan.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PWR has been corrected by ~15.25% in the past three months. The stock is trading below to its average of the 52-weeks’ low-high price band of $2.450-$3.850. The stock has been valued using the EV/EBITDA-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the diverse brands and well-diversified geographic reach. For this purpose of valuation, a few peers like Eagers Automotive Ltd. (ASX: APE), Autosports Group Ltd. (ASX: ASG), Bapcor Ltd. (ASX: BAP) have been considered. Considering the positive effects on the shift to the agency model, synergies from the acquisition of Penfold Motor Group, decent H1FY22 results, adequate liquidity, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $2.490 as of 02 March 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PWR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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