Peter Warren Automotive Holdings Limited

Company Overview: Peter Warren Automotive Holdings Limited (ASX: PWR) is an Automotive dealer in Aus11tralia and provides variety of old (used) and new vehicles, related spare parts, inventory and trade-related services. The Company’s segment includes Vehicle Retailing and Property, where former offers a diversified range of automotive products and services and the later holds commercial properties mainly for the use as premises for its motor dealership operations.

PWR Details

This report is an updated version of the report published on the 24^thMay 2022 at 3:55 PM GMT.

Key Takeaways from 1HFY22 Results:

• Strong Order Book: The company reflected ~97% growth in its order book on pcp basis and is optimistic for the underlying demand to be positive.
• Changing Models Impacting Revenue: With the adaption of Agency model, PWR no longer recognises revenue and the cost of goods associated with the sale of new vehicles. Instead, it recognises commission revenue for delivery. The overall revenue increased ~4%, which includes $12.00 million, due to a change in the model.
• Penfold Acquisition: With the acquisition of 100% of Penfold Motor Group, completed on 1 December 2021, PWR expands footprint across the Eastern Seaboard scales up in the Victorian market. Revenue of $28.9 million and PBT of $1.3 million were contributed through the Penfold acquisition (one month’s result) in 1HFY22.

 Key Metrics (Source: Analysis by Kalkine Group)

Other Business Updates:

• Addition to Index: Recently, PWR was added to the “All Ordinaries Index”, effective from 21^st March 2022.
• Change in Substantial Shareholder: BlackRock Group decreased its shareholding in the company from ~8.60% to ~5.85%.

Top 10 Shareholders: The top 10 shareholders together form around 63.11% of the total shareholding, while the top 4 constitute the maximum holding. Warren (Paul) and Quadrant Private Equity Pty Limited are holding a maximum stake in the company at 33.98% and 9.12%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company has reported an improvement in gross margin performance from 1HFY21 at 17.7% to 19.1% in 1HFY22. Moreover, net margin also improved during the same period. Its current ratio decreased from 1.33x 1HFY21 to 1.09x in 1HFY22.

Liquidity Profile & Profitability Metrics (Source: Analysis by Kalkine Group)

Key Risks & Mitigation: The company is exposed to the following risk factors:

• Omicron & COVID-19 Pandemic: Due to COVID-19 and the new variant OMICRON, PWR is prone to its impacts from lockdowns.
• Changes In Consumer Demand: The demand for its products might get impacted by changes in consumer & client preferences, where its Product Mix comes into play for its Mitigation to some extent.
• Foreign Currency Risk: The company is also exposed to fluctuations in foreign currency, which might impact the profitability too.

Outlook:  Looking forward, the company is focused on the delivery of strategic priorities, which include ownership or long-term leases of key strategic properties, expansion of current operations in the sale of new and used vehicles and pursuing new acquisition opportunities. For FY22, the company seems to be optimistic about sustainability of earnings on the back of a strong order book, expected improvements in new vehicle supply and anticipated positive underlying demand on the face of decent consumer savings. For FY22, the company expects limited downward pressures on new vehicle margins and finds itself well-positioned in continued OEM reforms due to geographic and brand diversity. The Penfold acquisition will help PWR to scale the operations and reap the performance contribution in the second half of FY22. PWR is mainly focussing on enhancing sustainable income streams and delivering cost base efficiencies via organic measures as well as the integration of acquired businesses.

Valuation Methodology: P/E 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 is trading near to its 52-week low level of $2.300, offering a decent opportunity for accumulation. The stock has been corrected by ~29.66% in the past nine months. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average P/E multiple, considering COVID-19 uncertainties and other macro-economic factors, etc. For the purpose of valuation, peers such as Eagers Automotive Ltd (ASX: APE), Bapcor Ltd (ASX: BAP), and MotorCycle Holdings Ltd (ASX: MTO) have been considered. Considering the expected upside in valuation, growing sales & orders book, rising NPAT, optimistic outlook with limited downward pressures on new vehicle margins, current trading levels, synergies expected from Penfold, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.450, 11:15 AM (GMT+10), Sydney, Eastern Australia, as on 24^th May 2022.

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 decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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.

Disclaimer

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