PWR Holdings spins out on FY25 results but may get back in the race

PWR Holdings occupies an interesting niche in the Australian stock market. It's an advanced manufacturer with clear global demand and powerful customers.

But its recently-released FY25 earnings were always going to reflect what has been a challenging year.

As a result, PWH was down more than 10% today despite meeting what was admittedly weak broker expectations. 

We got the thoughts of George Capozzi, portfolio manager for the Hayborough Opportunities Fund, on the surprises and risks from these results, as well as its prospects for the future.

PWR Holdings (ASX: PWH) FY25 results

• Net profit after tax of $9.8m (1% beat)
• Revenue of $130.1m (in-line)
• EBITDA of $25.5m (5% beat)
• Fully franked final dividend of $0.02 per share

What was the key takeaway from this result in one sentence?

FY25 was a soft year for PWH, as profits were hit by relocation costs, tariffs and delayed contracts, but the company is laying the groundwork for a bigger long-term opportunity in defence, aerospace, and Formula 1 cooling technology.

Were there any surprises in this result that you think investors need to be aware of?

The result was always expected to be soft, given program completions, relocation costs, and potential tariff implications. 

What did catch the eye was that margin recovery looks like it will take longer than expected. They are investing ahead of the curve, but it will take time for volumes to ramp and operating leverage to flow through. 

On the positive side, the company’s growing focus on Maintenance, Repair and Overhaul (MRO) was a genuine surprise. 

MRO wasn’t a major focus when PWR first entered aerospace and defence, but management now sees it as a significant long-term opportunity, providing recurring revenue streams alongside the more lumpy project-driven contracts.

Would you buy, hold or sell PWH off the back of this result?

Rating: BUY

We view PWR Holdings as a Buy on share price weakness. While not cheap on current earnings, it is one of the few Australian advanced manufacturers to carve out a genuine global niche that takes advantage of increasing global defence spending.

PWR earns very high product margins by designing and producing specialised cooling systems for high-performance cars, defence equipment, and aerospace applications, technology that few competitors globally can replicate. 

Their customer list includes every Formula 1 team, numerous hypercar manufacturers, and now tier-one aerospace and defence primes.

FY25 earnings were disappointing, but investors should weigh that against the long-term opportunity:

1. Formula 1’s 2026 regulation changes will make cars far more reliant on electric power, creating complex new cooling challenges where PWR is a key partner.

2. Aerospace & Defence expansion, with supplier relationships increasing from 11 to 46 during the year, including tier-one customers.

3. Maintenance, Repair & Overhaul (MRO) expansion, which should provide more stable, annuity-style revenue streams alongside project-driven work.

Are there any risks investors need to be aware of?

There are several risks to note. 

Execution on the new Stapylton HQ facility is critical, with management targeting completion by December 2025. 

Large projects of this nature always carry timing and cost overrun risk, particularly as PWR is relying on third-party contractors, unusual for a business that has historically done everything in-house. 

Tariffs are another headwind, though the company is working to mitigate these by shifting more production to the US.

As FY25 highlighted, PWR’s revenue can also be lumpy, when large OEM programs finish, there can be gaps before the next program ramps up. 

Finally, the outgoing CEO Kees Weel has been central to the exceptional culture embedded in PWR’s DNA. We are watching closely to see how the leadership transition is managed and who will ultimately take the reins. 

What gives us confidence is that the company’s technical expertise and culture run very deep, providing a strong bench of talent to sustain its competitive edge.

How much value are you seeing on the ASX today?

Equity markets have had a strong run, and overall valuations are looking stretched versus long-term averages. Earnings growth has been patchy, yet multiples have expanded, which leaves less margin of safety. 

That said, there are still opportunities in select quality businesses outside the big indices, often in niche sectors or in areas where passive flows haven’t inflated prices as much.