Camplify Holdings Limited

ASX:CHL

Camplify Holdings Limited

ASX:CHL
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$1.210 (0%)
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#213
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10
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Forum Topics CHL CHL Overview

Pinned straw:
Slomo
Added 2 months ago

Rambling Overview thesis for CHL

Wanted to share my thinking while it's price is down and I've been topping up (and likely jinx it for further falls...), so apologies in advance if this is a little incoherent, especially if you don't already know the business - DYOR.

Share Price

As mentioned here by @JPPicard and @Rocket6 , CHL share price is down a lot recently – likely because of Tourism Holding downgrade (and selling it’s position in CHL).

However, price was already drifting before that, likely because it is currently in integration (no longer growth) phase.

Mr Market is potentially Short Term thinking as PaulCamper acquisition won't grow this year as the focus is (wisely I believe) on consolidation and integration - owner operator mindset.

It's good to see Mgmt behaving like the owner operators that they are rather than just endlessly chasing growth by acquisition (M&A is probably off the table for them until share price recovers anyway).

Cash vs Profit

Also the market possibly sees CHL as endlessly loss making when they actually just turned Op CF breakeven for > 4 consecutive quarters.

As a result, CHL no longer need to report 4C’s because, even through they are still loss making, their Negative Working Capital Cycle means they are Op & FCF positive.

I expect them to remain approximately FCF break even as they grow fast from a low base so shouldn't need capital except for acquisitions.

Business Dev

Improved insurance product coming online could be a boon for them - market perhaps doesn't understand this?

Insurance product and marketing around this COULD drive more vans onto the platform - a critical driver of growth.

European take rate to push up in line with ANZ market (this may take time and will likely be a delicate dance).

Risks

M&A is a big risk here – acquisitions are their source of high top line growth and getting to scale – so paying too much or integration issues are a definite risk to long term value creation & capture.

Tent business acquisition seems odd and potentially a source of risk if mgmt deviate focus from their core offering.

CEO has talked about this in the past - that the platform is agnostic and could be used for other things.

Hopefully the Insurance add on will embed their specialisation on the platform.

However, the insurance play may not work out as well as expected, so this should get chalked up in the risk column too.

Cosy lives

The consumer is under pressure and likely to stay that way while fiscal and monetary policies are pulling in different directions. To the extent that holidays are discretionary this will likely have an impact on tourism. We're seeing this with Apollo's recent downgrade and other tourism stocks on the slide - EXP.

However, if people need a holiday / mental health break it might not be so discretionary after all (mandatory leave requirements / annual leave accruing on balance sheets help here too) and looking for cheaper alternatives to hotels or Airbnb might drive holiday makers to vans. Not really a lipstick effect, more like the reason fast food / discount retailers can do better in a downturn.

Cost of living pressures could also be a boon if squeezed owners put their vans on the platform rather than selling them. That is a key constraint to growth - getting the number of platform assets up from 2% to something much higher.

I.e. sharing economy to pick up in leaner times. Think Car Next Door (now Uber), Airbnb out your holiday home, also a lot of households took in borders during the great depression (antiquated and extreme but psychologically relevant analogue?)

M&A target?

M&A potential from the other side - if CHL are seen as a potential competitor to Airbnb - like Car Next Door was to Uber (and now owned by Uber), Airbnb might just buy them and run stand alone / as a data gatherer / cross promoter / adjacency?

Founders are now diluted due to raises to fund acquisition, so will have limited guard against a hostile takeover.

Apollo divesting adds to takeover potential.

Disc: Held.
Slomo
2 months ago

Share price

Safe to say today’s Downgrade blamed on PC implementation delays has underwhelmed the market.

CHL share price has been poleaxed - down nearly 25% today and more than 50% below this year’s highs and 75% below all time / boom time highs.

Essentially a 30 day integration plan for PaulCamper took closer to 90 resulting in up to $4m in lost revenue in FY24 (one off).

As @mushroompanda mentions, this seems like a lot of revenue to lose from a 3 month integration from a business only making about double that in a 6 month period...

Cost gains of up to $4m to come in FY25 (and going forward).

It's a jam tomorrow story that the market understandably doesn't like.

Anyone in it for a good time would be out by now.


Kiss the nuts?

I gave CHL the kiss of death with an optimistic overview a week ago and this morning reality caught up with it and me.

I’ve topped up today, so look out below - that’s a potential kick in the nuts while it’s down…

Mgmt have a couple of black eyes – one for the execution problems, and the other for how they have explained it / lack of transparency.


Mgmt Questions

Mgmt were not great on the call which was scheduled for 2 hours (weird?) but lasted just 15 mins with 4 of my questions either bundled, misinterpreted (possibly my fault) or ignored.

Mgmt weren’t overly transparent and seemed keen to get it out of the way as quickly as possible.

I asked about a post implementation review which I believe is common (but maybe only best) practice for projects of this size, especially when they blow out. That was ignored.


Why now

With announcements like this I always find myself asking “Why am I hearing this now?”

The ASX Announcement was marked material and rightly so but if the integration was completed in April it could / should have been released earlier than today.

@Rapstar mentioned the PaulCamper founder Dirk’s 10% CHL holding comes out of escrow in a few weeks, so this may explain the timing – so he gets to taste some of his own cooking?

I double checked this and @Rapstar is spot on – Dirk’s escrowed portion just dropped $2.4m in value from $9.7 to $7.3m as the price fell from $1.46 to $1.10 today.

This is also effectively an early confession season entry but also possibly to clear the air ahead of next week’s Shareholder presentation day…


Shareholder Day

If I can shuffle some other commitments, I'll be attending the CHL Shareholder Day next week (e-mail awarden@chl.global if you want an invite, RSVP's are due tomorrow) to get a better sense of the business including the PC implementation, M&A plans going forward, etc.

The best thing I may end up getting out of it is to put this idea to bed for a nice long sleep / induced coma if it doesn't seem to have the emerging quality factors that drew me to it.


Insiders

Directors were buying on market in Feb & March when the delays would have been known.

However, Apollo would have also known when they sold out at much higher prices than today, but they had their own issues and probably just needed the cash, given their subsequent downgrade.

Dirk is stuck with 90% of his shares (6.64m) out of escrow on or about 2-Jun-24, with the $1.96 the scrip part of the deal was struck at dropping to $1.10 now costing him $5.7m on paper. $2.4m of that was due to today’s fall… so he’ll not be a happy camper.


The high cost of M&A

As mentioned last week "M&A is a big risk here" and the M&A Risk for this business just got real.

I had a look a the last 2 decent size acquisitions (excluding the tent business bought for $0.8m) - PaulCamper being the largest by far and they only spent $1.8m cash on it, the rest being scrip of $48.2m @ $1.96.

The other was an all scrip seal for Tourism Holdings Limited (THL)'s ANZ assets for A$7.4m in CHL shares at a price of$3.34 ea.

So these deals were dilutive but at higher prices than now and didn't cost a lot of cash.

This is potentially lazy analysis and ignores the potential that management have destroyed value with poor capital allocation by throwing equity around like candy.

I don't think we'll know how good these acquisitions were for a while yet and mgmt have been diluted along with the rest of us. Time will tell.


What now?

The bull thesis is that it's fundamentally a good business (emerging quality), with a dominant 2-sided marketplace in select markets that should be winner takes most due to network effects.

If it wins this game without destroying value along the way it's probably cheap today, if not, it probably isn't.

CHL has 50%+ market share in ANZ, 50%+ in UK, big in selected EUR markets (dominant in Germany, also big in Netherlands & Spain), so scale is under construction and approaching an inflection point (FY25 or FY26 NPAT break even I expect) but already marginally FCF positive and self funding except for M&A which now seems unlikely in the near term.

Buffett (here we go...) has said he likes to buy great businesses with short term problems - CHL is no AMEX but if management have learned their lesson (unclear), can steady the ship (hopefully doing that now) and turn it around from here (easier said than done), $1.10 could be cheap.


The bear thesis is that this is the tip of the iceberg as @Tom73 also fears, so we may see more downgrades, it will keep making losses and possibly start burning cash as revenue is stagnant, management are out of their depth, and looking for ways to restart the growth engines.

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Dominator
2 months ago

Great summary @Slomo thank you. I have been watching Camplify for a few months now as I had them on my watchlist to buy.

I can't quiet understand how a booking website loses such as sizeable portion of sales while moving "platforms". I would have thought for the hirers/lessors this change would have been managed in the way that appears seamless to them besides maybe a different looking website? Paul Camper is still a functioning website... It's not like Camplify is the only website to use now. How much of the lost revenue is only one-off if customers were annoyed in the process and won't be coming back... I'll be on the sidelines waiting to see how things play out but the savings as a result of the change seem material longer term.

11
Ipsum
2 months ago

Great summary, @Slomo.

I've been watching Camplify for a while with steadily growing enthusiasm. Their customer acquisition cost is impressive, and the plans for insurance/add on revenue look attractive.

This announcement has wiped away the confidence I had in their ability to execute.

I can't get my head around losing so much over migrating a booking site, or taking so long to realise. In particular, from the announcement:

The platform migration, and challenges in customer transition, has had a material impact on customer bookings and activity for the period of the migration. This impact has had a flow on effect to FY24 revenue for CHL of a reduction in revenue for the year of between $3.5m - $4m

I would understand a little better something like "well, the integration took longer so we had to pay our expensive outsourced software development company way more than we thought". That wouldn't be great news, but it would at least be unsurprising. Many large IT projects go late and over budget.

The disclosure states that revenue has been affected. This sounds like either customers couldn't book, or - possibly - they could book but for some reason had to be refunded.

This seems bizarre. And, as others have pointed out, why did it take so long to notice? Surely they have near-real time reports on bookings across their platforms. Maybe the issue was incorrect bookings, which resulted in a large number of cancelled transactions. They found out quite recently, and had to reverse a large number of customer bookings? I'm not sure how this would be reported, but my understanding is that Paul Camper bookings are charged up front, while Camplify bookings are charged at time of booking.

If the issue was incorrect bookings there is also concern about the impact on damage to the brand and repeat business. Without knowing if customer bookings were cancelled it's hard to know.

Possibly more information was disclosed on the call, but but from @Slomo's report it doesn't sound like management were very upfront.

Hopefully they will do better in future. I would hope some valuable lessons were learnt, but it's hard to tell without better communication.

Updated:

Reading through the transcript from today's call, it seems refunds were not the issue:

These issues included an impact to a slower than expected customer migration and revalidation process due to Kyc. An impact to the ability to run campaigns during the period and Sel impacts. Now the project is technically complete. The Chl expects poor Camper to return to normal trade in June.

So it sound like the migration took longer, customers had to onboarded and identified to the new platform, so they dialled down the marketing spend?

I suppose on the positive side this reduces the risk of brand damage. But management must have been aware of the issues much earlier than today.


13
PabloVic
2 months ago

Great conversation and points by all.

I've used Camplify twice in Australia hiring a Campervan and had very positive experiences both times. As others have mentioned, $3.5m - $4m hit on revenue seems really odd for the following reasons:

  1. PaulCamper take rate was 18.2% for H1, this revenue impact means they have lost close to 19.2m - 22m in gross transaction value / bookings.
  2. Based on the H1 results, revenue for PaulCamper markets of Germany, Austria and Netherlands was $3.18m, or GTV of roughly 17.5m
  3. If this did only impact 3 months and the take rate was the same it means they have doubled the GTV from H1... which the skeptic in me seems unlikely
  4. In the H1FY24 interim results they said the following which now seems inaccurate.
  5. In Q3FY24 CHL completed the integration of the PaulCamper business into the Camplify global OnePlatform with all customers using the same platform across all markets.
  6. Although this isn't a great measure, a quick look at Google reviews on PaulCamper is not positive. What is more interesting in this is some of the reviews are by the owners. As @Ipsum mentioned this is a concern about brand reputation and the owners jumping to another platform.

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