Consensus community valuation
$1.950
Average Intrinsic Value
2.3%
Undervalued by
Active Member Straws
#Bull Case
Added 2 months ago

I recently heard a really strong bull case for CAT on the ‘equity mates’ investing podcast by Andrew himself, where he made some great points.

 

Year upon year of double digit revenue growth, strong elite revenue growth (core growth) and 75% of CAT’s revenues being on a subscriptions basis tells me that they are marketing a quality, desirable product that its clients are coming back to. Looking at the ‘elite sports’ industry that CAT’s clients operate in, we can see that this market is growing in exposure (particularly English/Spanish/German football leagues), and thus provides an opportunity for CAT to continue its strong revenue growth in the future.

The appointment of the new CEO is a strong point, brought in with the overall aim of achieving cost efficiency in operations, something CAT has struggled with in the past. Hopefully they can pull some of these things into line and limit the need to capital raise again as will preserve enough cash for R&D themselves.

In terms of financial metrics, they have a strong balance sheet and have raised $5m in debt to help with COVID, however they had no debt prior to this. Management still believes they will reach FCF positive by 2021.

 

**FYI - I am a young investor coming to the completion of my applied finance degree at uni. I'd love for some feedback on my view to help my learn in the future.

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#Industry/competitors
Last edited a week ago

I'm new to Catapult and not familiar with their competitors/the industry. Here's a quick lay of the land with some initial findings.

High level summary:

Catapult does seem to have the most clients (2970+) and federations (150+) and is the most established. Statsports certainly looks to be the upcomer challenger brand playing in the same space. There's a host of smaller players dominating certain sports, competitions or niches (e.g. KINEXON, GPEXE) with traditional wearable companies like Polar also joining the team-tech party in recent times.

The main question is who is gaining market share in recent times and does Catapult have enough of a business moat especially against Statsports?


In no particular order, here's a couple of the competitors:

Statsports

  • "STATSports is the worlds leading provider of GPS trackers for sport. We provide a performance analysis system for elite sports teams and individual athletes."
  • In terms of EPL (soccer) teams: Manchester United, Spurs, Liverpool. Also has the Socceroos.
  • https://statsports.com/

Zebra

KINEXON

  • "KINEXON provides unrivaled player tracking and delivers athlete monitoring data in real-time."
  • biggest provider of wearables in the NBA
    https://kinexon.com/

GPEXE

Polar

Orreco

  • "We use biomarkers and data science to identify an athlete's individual thresholds and provide personalized strategies to keep athletes in their peak performance zones."
  • https://www.orreco.com/
     

Honourable mention for the pro-sumer market:

Whoop

  • "brings you closer to unlocking your human potential."
  • for high performers and serious exercise fa???ns
  • https://www.whoop.com/
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#Easing cost cuts
Added 3 weeks ago

Catapult announced that it is unwinding its costs savings measures (reduced salaries and furlough leave) as the impact of the coronavirus has been less than expected.

This announcement was not marked as market sensitive, and no specifics were provided, but I take it as a positive that the company feels such mitigation is no longer necessary (especially with so much business in North America).

I'm not reading into this too much, but felt it was noteworthy.

See here

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#Oversold?
Added 5 months ago

Catapult shares are down 65% since the start of the bear market -- around double that of the wider market. 

I think the business will struggle to make ANY sales for the rest of the year, and will be a slow pick up after that. The various leagues they service are all winding back, some entirely. In many cases, player pay is under review.

Catapult's customers are more sensitive to the impacts of this virus than I had first imagined. Initially, my expectation was that elite sports would continue, just without crowds and for broadcast only. But with entire seasons being suspended, this was a flawed assumption. 

The business was EBITDA and FCF positive in the latest half, and was on track for its first full year of positive cash flow, but they could linger in the red a while longer with this big halt to new sales.

That being said, the company has $25m in cash and no debt. That should keep them afloat until some form of normalcy returns for their customers. They also had $68m in recurring revenue, and though churn will almost certainly rise, it gives some comfort that there will be a base of operational cash flows coming in.

After Catapults first half results, i was assuming it could get $112m in revenues this year. That now looks unlikely.

If we assume that professional sport will be up and running again in another year or so, but allow for a big dip in sales and a slower growth rate from a lower base, we could say (for the sake of argument) that Catapult only reaches $112m in revenue and profitability in 3 years time. If we give the company a P/S of only 2, we get a target price of $1.14, which is 75c (the current market price) if we discount back at an aggressive 15% per annum.

In other words, assuming catapult can endure a large but ultimately temporary drop in new sales, you can sketch out a case for value using very low-ball assumptions. 

But maybe those assumptions, as unambitious as they may seem, are not reasonable?

I'll continue to watch closely

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#HY20 Results
Added 5 months ago

A good result for the 6 months ending Dec 31, 2019.

Revenue grew 18% to 50.7m, while the net loss essentially halved to -$4.8m.

Catapult recorded a positive EBITDA of $5.7m compared to a loss of -$1.4m in the prior first half. (They did get a bit of a boost from the adoption of AASB16. On a like for like basis, EBITDA came in at $4.7m)

Importantly, Catapult saw positive free cash flow of $13.6m, which has boosted cash to $24.7m. There's some seasonality here, but the company reaffirmed its expectations to sustainably generate positive FCF by FY21, and it seems unlikely it will need to raise cash again. 

Cross-sell initiatives seem to be doing well, with the number of customers with more than one Catapult product rising 66%. Overall customer numbers grew 19%.

The major North American segment saw growth of 21% in revenue -- it now represents 70% of the total. EMEA grew 15.5% and APAC grew 10%.

ARR grew 20% to $68.8m. 

Perhaps best of all, operating costs declined by 4%. (poor cost discipline in prior periods under previous mamangement was always a big concern).

Churn decreased from 5.2% in FY19 to 4.8% at the half.

Also encouraging to see the previously striggling Prosumer segment improve its loss from -$3.6m to just -$0.4m. Revenue growth was 9%, with reduced costs and marketing spend driving the bottom line improvement. 

Results presentation can be viewed here

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#COVID-19 Impact
Added 3 months ago

With sports beginning to start back up it is going to be very interesting to see whether the COVID-19 shutdown of sports worldwide is just a bump on the road or there are more significant long term effects on the business.

BEAR CASE: while sports are beginning to resume across the world (to empty stadiums) there has been huge financial losses to all sporting codes and clubs wolrdwide.  These massive losses in revenue could well lead to significant cuts (short & long term) and it may take a lot longer than expected to get back to where we were pre COVID.  Locally, you can see the effects on our football codes with huge cuts in spending in the short term and potential winding back and cost cutting for the longer term.  While many customers are on long term subscription contracts the bear in my thinks there are big risks in the short/medium term growth prospects of the company when sporting clubs all over the world are looking at how they can cut back spending, not looking to increase it by purchasing one of CAT's products.

BULL CASE: just a bump in the road.  As mentioned, most of CAT's clients are on long term subscription contracts and they have a very sticky product and improving churn.  Given the hugely valuable information CAT's products provide it will be hard for clients to cut this product as they have become reliant on the information it provides in supporting their players.  Growth wise, if sport resumes as expected and crowds are allowed back ASAP then revenue losses will be minimised leading to greater $$$ to spend going forward.

I have always been a big fan of their tech and the opportunity CAT has in the growing sports science/high performance landscape.  From their last update, it was postive to see their cash reserves are still over 30m (factoring in loan they've drawn down on) which is what they had at their HY presentation, meaning they aren't leaking cash through this challenging period (so far).  Expecting little to no growth in H2, but FY21 is going to be a close watch to see if we can pick up any indications as to any long term effects of spending throughout the sporting landscape. 

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#Change of FY
Added 2 weeks ago

A small but noteworthy thing: Catapult is changing its financial year end to 31 March and results will be presented in USD.

The main reason is because the current June 30 year end conflicts with the peak Norther Hemisphere selling season, which runs May to August and accounts for 85% of sales. Also, 70% of earnings are in US dollars.

The FY21 will therefore run for only 9 months.

Makes sense to me.

ASX announcement here

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#FY20 Results Preview
Last edited 2 weeks ago

Catapult is expecting the following for  FY2020:

Total revenue between $100-$101 million, up 5.3% from $95.4m in FY19.

EBITDA of $11.5-12.5m, up 192% from $4.1m last year.

$9m in free cash for FY2020; a big turnaround from the $24m loss last year and achieving a positive result a year earlier than expected.

Cash balance is $27.5m.

CEO Will Lopez said the professional sports landscape had improved since the last update on March 27, and that the business had continued to win new deals and retain customers during the lockdowns. However, this disruption has delayed things and many of the sales that would have been made in the last quarter are now expected to be delivered in the FY21 year.

With cost reductions already in focus, it seems covid allowed the business to cut costs faster and deeper than originally planned. There was always a nicely profitable business inside of catapult, so it's great to see that being unearthed (seemingly) without much of an impact on sales growth.

Speaking of which, 5%-odd top line growth would normally be a very disappointing result, but in the context of a raging pandemic -- one that had a direct and significant financial impact on its customers -- it could have been a lot worse.

As you can see in the chart below, sales are always much stronger on the second half (with sales typically dropping a bit from one year's second half, to the following year's first half). In this instance H2, sales were the same as H1 and down 5% from H2 2019. Normalising FY20 second half result using the H2 19's growth, sales would have come in 12% higher at $112m.

Given things will be tough for the foreseeable future, I'd be happy enough if they could score 10% sales growth for FY21, before returning to 15-20% odd growth (on average) over the coming 5-6 years.

Based on last close of $1.27, shares are trading at an EV/EBITDA ratio of 18. Assuming they can recover to near pre-covid sales growth in the coming years, and maintain cost discipline, that seems very undemanding.

Full results will be out late August.

Read ful announcement here

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#Bear Case
Added 2 months ago

The question here is that will COVID have a material impact on the long-term longevity of the business growth. Sporting codes are virtually all closed, however returns dates are being mandated and an overall return is in the near future. Will elite sporting teams still be afford new products such as those offered by CAT? Maybe not.

I’m an avid follower of the English Premier League (EPL) and I am aware of the massive losses in revenues that these clubs have been facing due to a lack of TV exposure, which is where the big revenues are generated. If such clubs cannot afford data analytics tech, then sales growth will indefinitely be hit in the short term but will also impact on revenues in the next 2-5 years. This will subsequently hit CAT’s “reaching FCF positive by FY21” goal pretty hard. The question here is really how sticky are the revenues for CAT and how can they continue to generate sales and earnings growth during this economic turmoil.

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#COVID-19 Impact
Last edited 4 months ago

Catapult has provided an update relating to the impact Coronavirus is having on its business.

Catapult reiterated its strong cash position, which combined with a recent drawdown of $5m in debt from its existing facilities, gives it ~$30m in cash.

It is working to manage costs and manage working capital (although, no mangement or directors have taken a pay cut -- unlike other pre-profit companies. Seems like that would be the classy thing to do).

The company is "comfortable" its ability to reach cash flow positive has not been materially impacted, and has reiterated guidance for that milestone to be reached by FY21.

Customers continue to use and purchase their products, but purchasing decisions are likely to be deferred, and that Q4 new sales growth is likely to be negatively impacted.

75% of revenues are are based on long-term subscription payments.

The business will benefit from a weakening Aussie dollar. (looking seperately at the FY19 annual report, a 10% fall in the AUD would have boosted profit by ~$3.5m)

CEO Will Lopes said that the group is well placed to navigate the crisis and the strong cash position will strengthen their competive position long-term.

Full announcement here  

 

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#Bull Case
Last edited a month ago

Will be looking to buy more on Monday if it drops further. A market leader with a product that elite clubs have to have. The risk of not having this data far outweigh the cost. The price fall being profit taking in my opinion and nervous traders. 

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#Bear Case
Added 5 months ago

With news that a lot of major sporting events are being cancelled, the flow-on effects to Catapult, especially regarding media coverage within matches could be impactful.

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#Management
Added 17 hours ago

DOH, my Son wanted to buy some CAT. I said we'll wait for a bit of a drop. I owe him 11% today. :-)

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#ASX Announcements
Added 18 hours ago

Catapult has been awarded a video exchange contract by US college football teams.

The announcement says that this deal could open up more commercial opportunities. 

https://www.asx.com.au/asxpdf/20200803/pdf/44l40mnkm4sswn.pdf

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#Bull Case
Last edited 2 months ago

I heard a podcast with a member of the statsport team. They supply 11 premier league games teams. Not sure if CAT owns them or they are competition. Regardless, they have been using the trackers at home during cv19 and they have been using the info to create a safe back to training program. I will be buying more CAT. It is only a small holding but may grow.

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#COVID-19 Impact
Added 2 months ago

CAT released a COVID business update reaffirming their current position.

·         $24.7 million in cash with no previous debt + has just drawn an additional $5m in debt from an existing debt facility to strengthen balance sheet

·         Still aiming to be FCF positive by FY21!!! (they maintain that their “ability to reach positive free cash flow has not been materially impacted.”)

·         They admit Q4 FY2020 sales growth will be negative

·         75% of CAT’s revenue is subscription based, with long term contracts.

·         Weakening AUD will benefit sales (majority of which are in the US)

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#Bull Case
Added 3 months ago

Altium gave a report that that should have seen a double digit drop in normal circumstances. This should be very positive for CAT given their positive presentation. 

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#Broker Coverage
Last edited 9 months ago

Morgans has raised its taregt price for Catapult from $1.72 to $2.19.

It has cited the renewal of the Australian Rugby Union contract, and other recent contract wins and increased conviction that Catapult will be self-sustaining by the next financial year.

It is forecasting an ~18% lift in sales for FY20 to $112.5m and an EBITDA of $15m. It expects Catapult to record a net profit in FY21 of $4.17m

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