I have just finished listening to the results call and am feeling a bit more comfortable about my investment here.
A few of the key points
1. There was a timing issue in terms of costs and revenue for Formula 1 across H1 and H2. There are new price caps for the F1 teams. Their costs are measured by calendar year. There was about $2m in costs incurred in H1, for 4 F1 teams. The revenue for these come through in H2, so should improve figures in this area in H2.
2. The NPAT margin for H1 was 14.8%, which is well below their 20% target. They seem very confident that for full year, this will be very close to 20% (i.e. high 19%'s if not 20%). Longer term they are comfortable that their NPAT margin will be above 20%.
3. A couple of times Kees talked about some significant contract wins in Aerospace and Defence, which should be announced in the next 3 months. It seems at least some of these are related to 3D printing.
4. The pipeline is strong, with proportionately more coming from A and D. They have a new board member just come on who has a lot of experience in that industry, so that should help. On the negative side, there is a big program for 500,000 vehicles that has dropped off the pipeline. This may still come to fruition. The customer has pushed back the program for about a year, but also even though PWR want the work, the margin is below what they would be prepared to supply for, so they are trying to negotiate a better margin. I suppose the positive is that they are very focused on using their capacity for higher margin work and are not prepared to compromise on margin.
5. They have new UK facility coming on shortly. They are very 'bullish' (their words) about their prospects in the UK and believe they will be up and running their shortly. They manufacturing facility in Australia is still on track to come on line in 2025 and they have also invested in a warehouse nearby. So, they are future proofing for the next 10 to 20 years.
6. Costs in cyber, ERP development and capex will be ongoing. Cyber spend is very important when it comes to competing for A and D contracts. Customer engagement costs may moderate slightly going forward as there was a bit of catch-up post covid.
7. They still see EV as a very lucrative space going forward. They are involved in partnerships with alot of high end providers. That is where their focus is. They do not see Chinese manufacturers being a threat in this high end area.
8. The Australian defence Land 400 (?) program is still awaiting to be announced. They don't know when that will be. They are partnered with both contenders. Even after it is announced, it would take at least 6 months before related revenue would start to flow through.
So, overall, they are still sounding very confident for the long term. I do believe that their long term future is very bright and that alot of the current investment will serve them well over the next 10 years. The focus is on investing now to ensure that they have the capacity and expertise to capture alot of future work that is coming through in A and D and in EV space, as well as continuing with Motorsports. We are already starting to see some of the fruits of this, but it will not necessarily be a smooth continuous ride up. By it's nature engineering and manufacturing is more difficult to manage that other areas, so there will be bumps.At the end of the day, the question for the investor is whether they have confidence in the long term future and are prepared to be patient.
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(20min delay)