After the storm, a focus on operational performance
Despite heavy costs associated with new product development, core operating EBITDA improved from a loss of A$4.5m to a profit of A$2.9m, on revenues that were in line with expectations. The reported loss of A$13.6m was caused by one-off restructuring and acquisition costs (A$3.3m), high non-cash share-based payments (A$3.3m) and non-cash acquisition-related amortisation of intangibles (A$5m).
With an estimated 75% of this year's revenues locked in under subscription models, we expect FY18 will be a more stable year where management can focus solely on operational performance.
Changes to forecasts
We have revised our forecasts to reflect:
- revenue and margin trends seen in H2;
- higher starting numbers of Elite Wearable subscribers;
- further unfavourable movement in the A$/US$ exchange rate; and
- market size for Elite Wearables being larger than our previous assumption.
Consequently, our discounted cash flow valuation (which drives our share price target) has been increased.
Risks and catalysts
Risks to Catapult's near-term revenues and share price include:
- failure to secure major league-wide deals;
- a slower rate of new team-based contract signings;
- operating cost blow-outs; and
- irrational competitor behaviour or a major league-wide deal by a competitor.
Potential near-term catalysts include:
- winning one or more league-wide subscription deals;
- a lift in the rate of team-based subscription orders;
- better-than-expected cost controls; and
- loss of a major client by a close rival.
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 and the company has a strong ability to execute.
We retain a positive view on Catapult and, as the share price trades well below our valuation, we retain our Add recommendation.
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Disclaimer(s): Morgans Corporate Limited was a joint lead manager to the placement and share purchase plan of Catapult Group International and received fees in this regard.
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