Automotive retail players have seen their share prices stagnate leading into 2020. The AP Eagers Ltd (ASX: APE) share price has fallen almost 25% since October, the Bapcor Ltd (ASX: BAP) share price has fallen 10% since November and the Super Retail Group Ltd (ASX: SUL) share price has been largely flat.
So, rather than focusing on traditional automotive players, could these 2 automotive tech plays generate market-leading returns in 2020?
1. PWR Holdings Ltd (ASX: PWH)
PWR provides world class cooling solutions by manufacturing high performance aluminium radiators, intercoolers and oil coolers to leading race categories and teams such as F1, NASCAR, V8 Supercars and World Rally Championship.
In the company's FY19 report it cited that its primary market is niche and high end, which are less price or demand sensitive to general economic conditions. Its primary market categories are expected to continue growing with a focus on diversifying sales on verticals such as aerospace, military and electronic cooling. The report delivered strong growth across all financial metrics with revenue increasing 26%, earnings before interest, tax, depreciation and amortisation (EBITDA) increasing 34% and net profit after tax (NPAT) increasing 29%. It trades at a moderate price-to-earnings (P/E) ratio of approximately 34 and has a market capitalisation of just under $500 million.
I believe the company has a strong proven track record to continue to leverage its niche position as a world leader in high performance cooling.
2. Carbon Revolution Ltd (ASX: CBR)
Carbon Revolution is a recent IPO, with an offer price of $2.60 per share back in November 2019. The company is an advanced manufacturing company that designs, manufacturers and markets single piece carbon fibre wheels. It has a number of significant existing supply programmes in production with Ferrari, Ford, Renault and other global original equipment manufacturers (OEM). The company's IPO also attracted some high profile shareholders including Swiss wheel manufacturer Ronal, which holds 11.2%, the State of Victoria, which holds 4.3%, and Deakin University, which holds 6.6%.
There is a strong business case for Carbon Revolution's technologies as automotive players are focused on adopting new weight reducing technologies to improve efficiency, reduce emissions, enhance performance and increase the potential to carry a larger payload. It has attracted a Federal Government grant to adapt its innovative technology to the aerospace sector, which could attract further products, intellectual property and revenue in the medium- to long-term.
Carbon Revolution has forecast that its FY20 revenue is expected to almost quadruple from $15.1 million to $62.2 million. In a December business update, the company confirmed that it continues to break monthly production records as it targets an increase of its annualised production capacity from 12,000 wheels per annum in August 2019 to almost 32,000 wheels per annum by June 2020.
