New strategy outlined
Catapult held its annual general meeting when the company outlined its strategy and priorities for the first time under new CEO Mr Joe Powell. The new strategy is aimed at deepening the competitive moat around the core elite wearables and video analytics businesses and avoiding a repeat of former lost opportunities. While implementation should make the business more bullet-proof, the short-term downside is that the accelerated investment and customer acquisition plan will defer, by 12 months, the point where the company is generating self-sustaining cash flow.
Changes to forecast
We have changed our forecasts to reflect the new guidance and a plethora of small changes to forecasts for each business unit. While the point of cash flow break-even is deferred until FY19, all of the strategy changes appear logical and sensible to us. Our share price valuation remains unchanged, helped by a reduction in WACC to 11.7% from 12.3%.
Risks and catalysts
Risks to Catapult's near-term revenues and share price include:
- failure to secure major league-wide deals;
- new team-based contract signings fall short of expectations;
- further operating cost blow-outs; and
- irrational competitor behaviour or a major league-wide deal by a competitor with negative implications for Catapult.
Potential near-term re-rating catalysts for Catapult include:
- winning one or more league-wide subscription deals;
- better than expected team-based subscription sales;
- better than expected cost controls; and
- loss of a major client by a close rival.
We retain a positive investment view on Catapult Group International (CAT). The company is a world leader in elite athletics devices and analytics and continues to invest aggressively in growing its global user base. The market opportunity ahead of Catapult remains large, in our view, and the company has shown the ability to execute. As the share price trades well below valuation, we retain an ADD recommendation.
As Catapult has not yet become self-sustaining from a cash flow view, the stock is high risk.
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Disclaimer(s): Morgans Corporate Limited was a joint lead manager to the SPP of shares in Catapult Group International Limited and received fees in this regard.
Analyst owns shares.
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