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Speaker 1: Welcome to Fear and Greed, summer investing series brought to

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Speaker 1: you by Vanter, specialists in compliance led growth. I'm Sean Aylmer.

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Speaker 1: One of the best things about a series like this

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Speaker 1: is discovering companies you know very little or nothing about,

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Speaker 1: and this one is a crack up. It's called PWR

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Speaker 1: Holdings and is a supplier to a bunch of F

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Speaker 1: one racing teams and ultra lux car makers like Aston Martin.

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Speaker 1: As always, this is general information only and you should

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Speaker 1: seek independent advice before making investment decisions. Gora Sodi is

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Speaker 1: the deputy head of research at Intelligent Investor GRAB. Welcome

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Speaker 1: back to Fear and Greed.

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Speaker 2: Hello Sean, thanks for having me.

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Speaker 1: PWR Holdings, I need a one O one take me away.

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Speaker 2: It's hardly a household name, is it, But if you're

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Speaker 2: involved in racing, particularly F one racing, it is a

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Speaker 2: household name. PW, believe it or not, supplies every single

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Speaker 2: F one car on the green with its cooling systems. Now,

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Speaker 2: when I say cooling systems, you may think that air

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Speaker 2: conditioning or something. It is not. F one cars, of course,

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Speaker 2: have very powerful engines. Those engines require immense amount of cooling.

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Speaker 2: And while that's true of every conventional engine vehicle in

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Speaker 2: the world, F one engines have to be very specifically

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Speaker 2: tuned to every track. So what PWI does it comes

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Speaker 2: up with high end cooling solutions that can change depending

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Speaker 2: on the track and the car. So PWI will be

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Speaker 2: embedded with every team prior to the racing season and

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Speaker 2: they will come up with different types of cooling solutions,

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Speaker 2: typically a radiators, but there's lots of other calling solutions,

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Speaker 2: and those teams will come up with designs for every

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Speaker 2: car and every in every race, so there's a different

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Speaker 2: radiator and a different cooling solution for every car in

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Speaker 2: every way. So that means that if you're a BOSH

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Speaker 2: or if you're a German or Chinese manufacturer of calling

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Speaker 2: technology and you've got these giant factories, you can't change

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Speaker 2: your designs depending on every race. You need to be

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Speaker 2: a nimble, small, research heavy business to be able to

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Speaker 2: supply these high end, high end racing cars, and that's

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Speaker 2: where the niche exists. That's why a tiny business like PWI,

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Speaker 2: which started out in the Gold Coast and is run

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Speaker 2: out of Australia in America, that's why they can lead

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Speaker 2: the world and defeat the huge scale providers of this technology.

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Speaker 2: It's because they need to be nimble and change their

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Speaker 2: designs very quickly.

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Speaker 1: Wow, ultra high end engineering. Does it depend? I mean

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Speaker 1: how much of its business is dependent on F one?

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Speaker 2: Then if one has been where the business has made

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Speaker 2: its reputation and where they make about fifty percent of

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Speaker 2: their revenue at the moment. Now, when they first start,

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Speaker 2: there was another business, a UK business called Marsden, which

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Speaker 2: typically supplied most of the grid or the teams themselves

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Speaker 2: had their own calling technologies developed internally that they used

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Speaker 2: to use. And it was the Red Bull team originally

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Speaker 2: who took up who took a chance on a PWR

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Speaker 2: calling system. They used their their radiator and an intercoller

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Speaker 2: and they did that about ten years ago and they

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Speaker 2: won the entire championship. Now, this is an industry where

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Speaker 2: small changes can result in huge outcomes. So when that happened,

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Speaker 2: one by one over the next decade, every single team

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Speaker 2: eventually switched over to PWR and they're now supply that

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Speaker 2: the monopoly supply to the entire grid. Now not only

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Speaker 2: do they supply two or three pieces of calling as

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Speaker 2: technology in F one has changed, so has their calling requirement.

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Speaker 2: So they used to supply about four pieces of calling

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Speaker 2: technology per car. They now supply fourteen pieces of cooling

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Speaker 2: technology per car, and there's new changes coming in twenty

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Speaker 2: twenty six that will mean that that number of will

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Speaker 2: go up again. So there's baked in revenue growth for

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Speaker 2: that F one division. It's really stable, steady revenue that

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Speaker 2: we can rely on, and those teams are just not

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Speaker 2: price sensitive. Even the most poorly F one team has

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Speaker 2: a fifty sixty million dollar racing budget and calling might

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Speaker 2: account for about a million dollars of that budget. So

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Speaker 2: it's a small piece of a large pie, but an

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Speaker 2: absolutely crucial input where the business is going in the future, though,

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Speaker 2: Sean is is they're moving away from F one racing.

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Speaker 2: F one racing provides them with a lot of funded

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Speaker 2: R and D, so the teams themselves will pay for

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Speaker 2: PWR to come up with new designs and remain on

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Speaker 2: the cutting edge of calling technology. They are now using

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Speaker 2: that calling technology to move into defense and aerospace, so

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Speaker 2: we're talking about things like calling satellites, calling drones, calling

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Speaker 2: high and military equipment. So they're currently seeking certifications and

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Speaker 2: building a new capacity to supply a brand new industry,

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Speaker 2: and I think that's probably the most exciting part of

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Speaker 2: the business. They're not even really ready to do that

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Speaker 2: in a complete sense, but revenues are sort of doubling

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Speaker 2: every year even though they don't have the capacity or

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Speaker 2: the certifications to serve. So I think if we look

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Speaker 2: out ten years, I think we'll find a business that

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Speaker 2: has moved where you're earning these steady, high margin revenues

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Speaker 2: from motor racing, but you're getting a lot of growth

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Speaker 2: from aerospace and defense, and this I think will be

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Speaker 2: a much larger, more profitable business in the years to come.

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Speaker 2: And the risk graph, yes, I'm glad you brought that up,

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Speaker 2: because that all sounds very easy to do, and it

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Speaker 2: all sounds almost inevitable. There is nothing inevitable about all

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Speaker 2: of this. PWI does not hold any patent. Because it

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Speaker 2: turns over technology so fast, there is always a risk

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Speaker 2: that someone does things better. We have to remember that

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Speaker 2: Marsden got displaced by PWR. A better solution could always

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Speaker 2: displace them now. So far, they have the largest budgets,

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Speaker 2: they have the biggest teams, they're embedded. It's hard to do,

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Speaker 2: but it's not impossible. The other thing we have to

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Speaker 2: consider is price. Their market has now started to price

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Speaker 2: in higher expectations from this business. It's now a billion

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Speaker 2: dollar business, so it's no longer a small cap and

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Speaker 2: we need to be careful about the price we pay.

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Speaker 2: So I think i'd highlight those two things, the risk

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Speaker 2: of a competitor leap frogging them in technology and also

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Speaker 2: the risk of simply paying too much.

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Speaker 1: CORAV thanks for your time today. Thank you, Sean does

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Speaker 1: gorev Sony, Deputy head of Research at Intelligent Investor. Remember

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Speaker 1: to get your own independent advice before making decisions. This

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Speaker 1: is Fear and Grece Summer Investing series brought to you

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Speaker 1: Fear and Greed. I'm Sean Elmer. Enjoy your day,