While currency headwinds and investments into resources (staff and equipment) weighed on earnings in FY17, we believe the company is well positioned for strong growth in future years. We have increased our share price target on the back of upgrades to earnings forecasts and retain our Add recommendation
FY17 underlying EBITDA was down 13% to A$14.7m (+13% vs Morgans estimate), while underlying NPAT fell 14% to $9.3m (+12% vs Morgans estimate).
As expected, the result was weighed down heavily by adverse FX movements (especially the AUD/GBP), which reduced revenue by A$4.4m on a like-for-like basis. Excluding the FX impact, we estimate underlying NPAT was up 22%, which was a strong result in our view and highlights the good momentum experienced in the underlying business. The result was driven by strong organic growth in GBP denominated revenue (+28%) despite generally flat USD (-1%) and AUD revenue (+4%). The balance sheet remains strong with a net cash position of A$9m. Operating cash flow was down 18% to A$13.5m due to the drop in earnings and an increase in net working capital to support revenue growth in future years.
FY17 dividend per share of 5.6c represented a 60% payout ratio (up from 50% previously) and was above our forecast of 4.2 cents per share.
Core Motorsports division delivers strong growth
Motorsports was again the key driver of the result, with constant currency sales up 15% to A$36.0m. The result was driven by new and existing customers in both Formula One and other motorsports categories as well as increased take-up of complete assemblies instead of core only. Automotive aftermarket constant currency sales fell 3% to A$8.8m. However, excluding the C&R South business which is up for sale, sales grew 8%. Emerging Technologies and OEM both delivered strong results, with sales up 49% and 57% respectively.
We believe PWH's investments into resources (staff and equipment) sets all sales categories up for continued solid growth in future years.
Changes to our earnings forecasts see FY18F revenue fall 7% to A$49.9m while underlying EBITDA rises 7% to A$17.4m as we remove the earnings contribution from the impending divestment of C&R South. In addition, adjustments to FX assumptions also have a negative impact on revenue and earnings, which partially offsets the earnings upgrades from the better-than-expected FY17 result.
By Alex Lu, Analyst, Sectors Covered: Industrials: (VIEW LINK)