Director, RaaS Research Group, Research as a Service (RaaS)

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Director, RaaS Research Group

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Equity Bottom-Up

Peter Warren Automotive Holdin / Equity Bottom-Up

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<h2>Peter Warren Automotive Holdings Ltd</h2>
<h3>Tight new car supply driving gross margins higher</h3>
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<p>Peter Warren Automotive Holdings Ltd (ASX:PWR) is an integrated new and used car retailing business offering a full range of sales and support, including parts, service, finance and insurance. Founded in 1958, the group listed on the ASX in April 2021 raising $260m in a combination of a shareholder sell-down, property acquisitions, debt reduction and transaction costs. The group has a growth strategy that encompasses optimisation of its property portfolio, organic growth in the form of service expansion, and acquisition. To this point the group acquired Victorian-based Penfolds Motor Group effective December 2021 for a total consideration of $104m ($88m cash and $16m scrip at $3.02/share). The group operates 82 franchise operations, representing 28 vehicle brands under seven banners across Sydney, Northern NSW, Southern QLD and now Victoria, opening up national fulfilment opportunities. Vehicle brands are spread across volume (including Ford, Kia, Hyundai, Suzuki), prestige (including VW, Mazda, Honda and Jeep) and luxury (including Mercedes, Audi and Land Rover). Recent trading has been disrupted by COVID-related lockdowns and supply chain issues for new cars (including chip shortages) but has also resulted in improved gross margins due to favourable supply and demand economics. As a result H1 FY22 revenues were +4% on a pro-forma basis relative to H1 FY21, but EBITDA was +28% due to a 140bps increase in gross profit margin, which essentially dropped to the bottom line on good cost management.</p>
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<h3>Business model</h3>
<p>PWR offers a fully integrated new/used car retailing business with a full range of sales and support, including parts, service, finance and insurance. Such an offering touches the customer at each and every stage of car ownership and improves customer retention as a result. The group has a strategy of achieving organic growth from increased service offerings, supplemented with acquisitions of both property (when deemed strategic) and other dealerships. The group currently has ~$200m in property on the balance sheet.</p>
<h3>Favourable supply/demand conditions improve margins</h3>
<p>Despite significant disruptions from lockdowns, staff shortages and new car inventory shortages over H1 FY22, PWR still delivered 4% pro-forma sales growth on the PCP, benefitting from both brand, state and sales/service diversification. The shortage of new car stock and parts eased pressure on pricing and resulted in a 140bps increase in gross margin to 19.1%. With costs well controlled this increase dropped straight to the bottom line, resulting in a 28% increase in EBITDA over the PCP. In-line with a 60%-70% pay-out policy, a 9cps fully franked dividend was declared. The Penfold acquisition contributed for one month in H1 FY22 and will contribute for a full six months in H2 FY22.</p>
<h3>Listed operator Eagers Automotive a close peer</h3>
<p>Eagers Automotive (ASX:APE) is an almost identical business, albeit larger (market cap $3.4b), to PWR with a mix of new and used sales and the full range of sales and support across a wide range of brands. The group has a history of acquisition, the latest being the merger with AHG in 2019. APE has 33 car brands across 300 dealerships in Australia. Bapcor (ASX:BAP) is an automotive parts pureplay (cap $2.3b) that may also be compared to PWR. Based on current FY23 consensus estimates PWR currently trades at a 30% PER discount to APE and 40% discount to BAP.</p>
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Peter Warren Automotive Holdings Ltd
Tight new car supply driving gross margins higher





Peter Warren Automotive Holdings Ltd (ASX:PWR) is an integrated new and used car retailing business offering a full range of sales and support, including parts, service, finance and insurance. Founded in 1958, the group listed on the ASX in April 2021 raising $260m in a combination of a shareholder sell-down, property acquisitions, debt reduction and transaction costs. The group has a growth strategy that encompasses optimisation of its property portfolio, organic growth in the form of service expansion, and acquisition. To this point the group acquired Victorian-based Penfolds Motor Group effective December 2021 for a total consideration of $104m ($88m cash and $16m scrip at $3.02/share). The group operates 82 franchise operations, representing 28 vehicle brands under seven banners across Sydney, Northern NSW, Southern QLD and now Victoria, opening up national fulfilment opportunities. Vehicle brands are spread across volume (including Ford, Kia, Hyundai, Suzuki), prestige (including VW, Mazda, Honda and Jeep) and luxury (including Mercedes, Audi and Land Rover). Recent trading has been disrupted by COVID-related lockdowns and supply chain issues for new cars (including chip shortages) but has also resulted in improved gross margins due to favourable supply and demand economics. As a result H1 FY22 revenues were +4% on a pro-forma basis relative to H1 FY21, but EBITDA was +28% due to a 140bps increase in gross profit margin, which essentially dropped to the bottom line on good cost management.





Business model
PWR offers a fully integrated new/used car retailing business with a full range of sales and support, including parts, service, finance and insurance. Such an offering touches the customer at each and every stage of car ownership and improves customer retention as a result. The group has a strategy of achieving organic growth from increased service offerings, supplemented with acquisitions of both property (when deemed strategic) and other dealerships. The group currently has ~$200m in property on the balance sheet.
Favourable supply/demand conditions improve margins
Despite significant disruptions from lockdowns, staff shortages and new car inventory shortages over H1 FY22, PWR still delivered 4% pro-forma sales growth on the PCP, benefitting from both brand, state and sales/service diversification. The shortage of new car stock and parts eased pressure on pricing and resulted in a 140bps increase in gross margin to 19.1%. With costs well controlled this increase dropped straight to the bottom line, resulting in a 28% increase in EBITDA over the PCP. In-line with a 60%-70% pay-out policy, a 9cps fully franked dividend was declared. The Penfold acquisition contributed for one month in H1 FY22 and will contribute for a full six months in H2 FY22.
Listed operator Eagers Automotive a close peer
Eagers Automotive (ASX:APE) is an almost identical business, albeit larger (market cap $3.4b), to PWR with a mix of new and used sales and the full range of sales and support across a wide range of brands. The group has a history of acquisition, the latest being the merger with AHG in 2019. APE has 33 car brands across 300 dealerships in Australia. Bapcor (ASX:BAP) is an automotive parts pureplay (cap $2.3b) that may also be compared to PWR. Based on current FY23 consensus estimates PWR currently trades at a 30% PER discount to APE and 40% discount to BAP.













Peter Warren Automotive Holdings Ltd - Tight New Car Supply Driving Gross Margins Higher

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Peter Warren Automotive Holdin / Equity Capital Markets

<p>Peter Warren Automotive Holdings Limited (PWA) aims to raise around US$200m in its Australia IPO. </p><p>PWA is an automotive dealership group in Australia. It operates 17 dealerships across Sydney, Northern New South Wales and Southern Queensland. The company offers 27 vehicle brands and operates 70 franchises. PWA represents 18 of the top 30 brands in Australia.</p><p>PWA gets the bulk of its revenue from new car sales, and it managed to come out of COVID-19 with minimal impact to earnings. Revenue was down 3.34% in FY20 (period ending Jun 20) while NPAT was flat. It also registered a strong rebound in 1H21 with revenue increasing by 6.86% while NPAT was up 4.9x. </p><p>On the flip side, PWA has a small market share in a highly fragmented market and its organic growth appears to be slow leaving it dependent on M&amp;A for future growth.  In addition, while the offering is being advertised as being a primary offering, most of the proceeds will go to the two controlling families, along with a chunky pre-IPO dividend. </p><p>In terms of valuation, PWA has been priced at a discount to Eagers but ahead of Autosports. Looking at its past performance, the stock should trade at a discount to Eagers, and hence, in our view, it offers little upside from the IPO pricing.</p>

Peter Warren Automotive Holdings Limited (PWA) aims to raise around US$200m in its Australia IPO. PWA is an automotive dealership group in Australia. It operates 17 dealerships across Sydney, Northern New South Wales and Southern Queensland. The company offers 27 vehicle brands and operates 70 franchises. PWA represents 18 of the top 30 brands in Australia.PWA gets the bulk of its revenue from new car sales, and it managed to come out of COVID-19 with minimal impact to earnings. Revenue was down 3.34% in FY20 (period ending Jun 20) while NPAT was flat. It also registered a strong rebound in 1H21 with revenue increasing by 6.86% while NPAT was up 4.9x. On the flip side, PWA has a small market share in a highly fragmented market and its organic growth appears to be slow leaving it dependent on M&amp;A for future growth.  In addition, while the offering is being advertised as being a primary offering, most of the proceeds will go to the two controlling families, along with a chunky pre-IPO dividend. In terms of valuation, PWA has been priced at a discount to Eagers but ahead of Autosports. Looking at its past performance, the stock should trade at a discount to Eagers, and hence, in our view, it offers little upside from the IPO pricing.

Australia

Peter Warren Automotive Pty Ltd retails new and used automobiles. The Company offers cars, SUVs, trucks, vans, and other vehicles parts and accessories. Peter Warren serves customers in Australia.

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Peter Warren Automotive Holdin (PWR AU)

Peter Warren Automotive Holdings Ltd - Tight New Car Supply Driving Gross Margins Higher

Peter Warren Automotive Holdings Ltd Tight new car supply driving gross margins higher Peter Warren Automotive Holdings Ltd (ASX:PWR) is...

Research as a Service (RaaS)

Peter Warren IPO - Delicately Poised

Peter Warren Automotive Holdings Limited (PWA) aims to raise around US$200m in its Australia IPO. PWA is an automotive dealership group in Australia.

Sumeet Singh

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