Peter Warren Automotive (PWR) – Good time to buy a new car
January 13, 2025
Peter Warren Automotive (PWR) is a large car dealership group selling new and used motor vehicles. It also offers vehicle maintenance and repair services, parts and accessories and car care products, extended service contracts, and collision repair services. In addition, it provides financing for vehicle purchases through third-party sources and sells insurance products on behalf of retail financiers and automotive insurers. Peter Warren Automotive was founded in 1958 and is based in Warwick Farm.
A softer top line, combined with weaker margins and resulting impacts from operational leverage, has caused a significant downgrade to FY25 earnings expectations for Peter Warren Automotive, due to the company’s recent trading update and soft 1H25 guidance.
Key causes of the lower metal margins are quite simple – an oversupply of new vehicles, and demand for new vehicles that is lower than a year ago. This has resulted in a rapid decrease in profit before tax (PBT)margins (from ~4.0% in FY23 to ~0.6% in FY25), and thus at the earnings line.
We have downgraded our earnings forecasts significantly over the forecast horizon. As a result, our valuation and target price have decreased from $1.88 to $1.46. Key risks include: 1) demand for new cars is subject to consumer confidence; 2) car supply has rebounded and caused a decrease in margins, which may be subject to further pressure; 3) the cost base may cause further deleveraging, and 4) competition risks. In our view, the outlook remains uncertain, and we retain our Hold rating with the lower 12-monthtarget price of $1.46.
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