Markets

PWR Holdings shares tumble 25% – But analysts say buy the dip

Thu 21 Nov 24, 9:58am (AEDT)
Car crash open hood car mechanic to check condition of damage. See the radiator cooling panel Engine and electronic system for mechanic to check damage thoroughly to repair engine to complete for use automotive
Source: Shutterstock

PWR Holdings (ASX: PWH) shares plummeted 24.5% on Wednesday after the automotive cooling products manufacturer cut its first-half FY25 earnings guidance due to cancelled electric vehicle programs and higher-than-expected production costs.

By the numbers: PWR expects first-half FY25 net profit after tax to fall between $3.2 million and $3.7 million. At the midpoint ($3.45 million), this marks a 64% drop compared to the same period last year (1H24: $9.8 million). For context, Citi had forecasted PWR's first-half FY25 net profit at $11 million.

Market impact: PWR shares opened 10.3% lower but closed the session with a steep 24.5% loss. Trading activity surged, with 3.75 million shares changing hands — 1,410% above the stock's 20-day average volume. Year-to-date, PWR shares have dropped 30%, hitting their lowest level since July 2022.

PWR also experienced a single-day dip of 15.7% after reporting its FY24 results on 16 August. The result fell short of expectations, with revenue momentum slowing and the medium-term outlook impacted by increased investments. The stock never returned to pre-FY24 result levels.

2024-11-21 09 24 15-PWR Holdings Ltd (ASX PWH) Share Price - Market Index
PWR five-year price chart (Source: Market Index)

Analyst takeaways: Citi analysts upgraded the stock to a Buy on Thursday, viewing PWH as an attractive investment opportunity trading at approximately 24x FY26 price-to-earnings, citing the company's significant intellectual property, strong balance sheet, and offshore growth potential.

While commenting on the trading update, the analysts acknowledged the factors that have dented investor optimism: The loss of three niche EV programs, a softer aftermarket environment, and operating deleverage from recent staff hires. However, they believe the share price reaction is overdone, particularly given that the key long-term growth driver (aerospace and defense) continues to deliver robust growth of 67%.

The trading update triggered significant downward earnings revisions, including:

  • First-half FY25 EBITA and NPAT cut by 47% and 66% respectively, to $12 million and $4 million

  • FY25 EBITDA and NPAT cut by 25% and 34% respectively, to $36 and $16 million

  • FY26-27 EBITDA and NPAT expectations also eased by 7-11%

Several analysts maintained their optimistic stance while adjusting target prices:

  • Bell Potter upgraded its rating to Buy from Hold, lowering the target price to $8.00 from $9.75, citing favorable valuation and expected rebound in the second half of 2025 and strong FY26 trajectory

  • UBS retained a Neutral rating, cutting the target price to $7.50 from $10.20, noting that potential earnings volatility risks outweigh the current valuation appeal

  • E&P maintained a Positive rating, reducing the target price to $8.74 from $11.43, suggesting that while the earnings downgrade highlights near-term pressure, it does not compromise the company's motorsports fundamentals

 

Related Tags

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free