17 September 2019

    PWR: Racing to first place

    A cool Aussie company

    Robbie Urquhart

    Head of Australian Equities

    Email Robbie
    Robbie Urquhart

    Head of Australian Equities

    Email Robbie

     A recent addition to our Australian portfolios, PWR’s reputation for excellence and innovation in cooling product technology underpins many years of future profitable growth for the company.

     Leonardo DiCaprio gave a masterful performance as the eclectic Howard Hughes in the film The Aviator.  The film traces Hughes’ life as he attempts to revolutionise aircraft design and performance.  What is less emphasised in the film is that Hughes funded his endeavours with the profits from sales of a drill bit invented by his dad.  Although it was a critical component, this drill bit did not cost much relative to the total cost of drilling for oil.  This product made the Hughes family a fortune.  I was reminded of this when we met with management of Brisbane-based PWR Holdings recently. 

    Co-founded around the year 2000 by entrepreneur and CEO, Kees Weel, PWR began making cooling parts for motorsport teams. This included specialist radiators for water and engine cooling, heat exchangers and intercoolers for turbochargers.  Early on, PWR focussed on supplying some of the leading Formula 1 teams.  As its reputation grew, it broadened out into other motorsports.  It now supplies the vast majority of Formula 1 teams as well as NASCAR and the electric car powered Formula-E teams. 

    Like Hughes’ drill bit, these cooling products are critical to car performance, yet make up a fraction of the cost of the car.  PWR’s products are not patented.  But given PWR’s reputation for excellence, motorsport teams will think twice before switching to competing products that lack a track record in the sport.  Why take the risk, especially when cooling products are not a large overall cost in getting the most out of a very highly priced car?    

    PWR’s craftsmanship is exacting.  The quality of its products (typically customised), is high.  As such, PWR sells its products at healthy profit margins.  The know-how and expertise is difficult for potential competitors to replicate.  This dynamic, coupled with the high risk to customers of switching to a competing supplier, protects PWR’s profitability.  It acts as an economic moat around the business and is one of the key reasons we have bought shares in the company.    

    Similar to Hughes, the spirit of innovation is core to PWR’s DNA.  PWR invests heavily in research and development each year, ensuring it stays one step ahead of technological change.  This culture (and PWR’s motorsport reputation) has opened doors for the company to supply customers in a multitude of other arenas. 

    Today, PWR supplies cooling products to super car manufacturers such as Aston Martin and Porsche.  It makes cooling products for electric vehicle manufacturers.  And more recently, PWR has established an emerging technology division.  This division is developing products to be used in other industries such as aerospace.  This offers the company a significant opportunity for many years of revenue growth. 

    The people at PWR are passionate about their work.  They genuinely think like owners.  Kees together with the majority of his employees own more than 30% of the shares in the company.  They are motivated to turn the revenue growth potential into reality.

    In summary, this is a profitable company protected by an economic moat.  It is an innovative and growing business run by passionate hardworking people who are aligned with shareholders. We are excited to have added it to our Australian portfolios.