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Interest Mounts In Catapult

Small Caps | Jun 14 2017

This story features CATAPULT GROUP INTERNATIONAL LIMITED. For more info SHARE ANALYSIS: CAT

Canaccord Genuity is the latest broker to become excited about athlete monitoring SaaS company Catapult Group.

– Catapult Group is the leader in its market
– Canaccord Genuity sees strong organic growth
– Ongoing acquisition opportunities
– Structural tailwinds

By Greg Peel

Melbourne-based Catapult Group ((CAT)) is the global market leader in providing elite sporting organisations, to date numbering in excess of 1500, and professional athletes, approaching 13,000 under subscription, with real time data and analytics to monitor individual athlete performance.

Catapult’s client list includes some of the world’s most prestigious sporting teams, such as the NBA’s Golden State Warriors and soccer’s Real Madrid. It also includes the Australian cricket team. Catapult has this month signed a deal with the NRL to provide live-on-screen data in State of origin broadcasts.

Clients use data collected through varying methods, including wearable devices and video analytics, to assist in skills development, strategic training, game analysis, fitness, injury reduction and rehabilitation, as well as opponent scouting. Catapult’s ambition is to become a consolidator in this highly fragmented and fast growing space. To that end the company last year made two significant acquisitions.

The business can now be divided into two segments, being wearables and related software, and video analytics. The latter segment reflects the acquisition of XOS Digital. The other acquisition, of PlayerTek, opens up Catapult to the “prosumer” market, or to put it less delicately, the “sub-elite” market.  The sub-elite athlete market, as one might expect, is estimated to be up to ten to twenty times larger than the elite market. Importantly, Catapult’s devices are not particularly expensive – accessible to the less elite and pocket change for the elite.

Stockbroker Canaccord Genuity has initiated coverage of Catapult with a Buy rating. Canaccord notes the company exhibits an organic revenue growth profile in excess of 40% per annum, gross profit margins in excess of 80%, very low client churn, and strong structural tailwinds from the world of professional sport. Throw in the potential step-change in earnings with the formal launch of its Prosumer product in FY18, and the broker finds the story an attractive one.

Last month Catapult flagged two new acquisitions which it expects to complete in coming months, but given negotiations are still underway, could not provide specific detail. The first target offers an athlete management system to elite teams and the second provides a software application that complements Catapult’s existing offering.

A capital raising has been pre-emptively undertaken. Brokers covering the stock have adjusted for modest dilution and made some attempt to incorporate earnings assumptions based on acquisitions they as yet know little about.

The bottom line is Bell Potter (Buy) has not made any change to its $3.00 price target, given the assumed earnings benefit is largely offset by increased amortisation. Morgans (Add) has also re-run the numbers, and has included the impact of the new CEO’s share-based remuneration deal, and an increased assumption for investment in XOS product renewal.

All up, Morgans’ changes take the broker’s price target down to $2.99 from $4.43. It’s a lot, but then Bell Potter is on $3.00 and Canaccord has initiated with a $2.60 target. The stock last traded at $1.81.

While detail might be sparse, Bell Potter assumes the new acquisitions will be very complementary and not alter the company’s risk profile, while offering material upside potential from leveraging off Catapult’s existing platform and client base. Morgans notes the market opportunity ahead of Catapult remains large and the company has shown a strong ability to execute.

Canaccord suggest the health of any SaaS-based (software as a solution) business is dictated by the growth in its Portfolio Lifetime Value. Given its growing user base and low churn rate, Catapult’s PLV has consistently and materially increased since inception.

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