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.