Apollo Tourism & Leisure (ATL) has announced the acquisition of Camperco, a motorhome rental company operating in the UK and Ireland.
Upfront consideration for Camperco is £4.5m (A$8.2m), with an additional £1m payable per year over CY18 and CY19 (contingent upon achieving projected CY18/CY19 EBIT – not disclosed).
This marks the group's first move into the large UK/Ireland rental market and provides a beach-head for further European expansion.
Watch the video
Luke Trouchet, Chief Executive Officer and Managing Director of Apollo Tourism and Leisure, discussed the acquisition with the Morgans network yesterday. Watch the presentation below:
Provides ATL with growth optionality in a substantial market
The acquisition represents ATL's first foray into the large UK/Ireland rental markets. ATL will expand the existing operations through increased volume of RVs in existing rental dealerships, in addition to a modest increase in the number of locations in its existing markets.
Given Europe represents the second largest RV market globally (behind the US), we expect ATL will expand further into Continental Europe. The Camperco acquisition provides ATL with a support structure and experienced management team with which to pursue this expansion.
Once again, we expect this European rollout will be achieved predominantly via greenfield and potentially further small-scale acquisitions.
Mapping out our estimates
Based on ATL's pro-forma NPAT acquisition multiple, we estimate that Camperco is forecast to generate c£700k NPAT and c£$1.1m of EBIT in CY18/FY19.
While Camperco generated revenue 'in excess of £3m in CY17', we understand that the fleet has grown materially over the last year in particular. Similar to ATL's other northern hemisphere operations, Camperco's earnings are heavily skewed to the 1Q of the FY (key summer period). While no synergies were quantified, we expect ATL will be able to implement its own expertise/IP into this business (including flex pricing to maximise utilisation and yield).
With no assumed earnings contribution in FY18 but additional shares on issue, we forecast the acquisition (standalone) to be 0.4% EPS dilutive in FY18, but 5.1%/5.7% EPS accretive in FY19/20 (full year contribution). However, we have also decreased the company's blended tax rate assumption in FY18 but increased it from FY19 due to a misunderstanding of the company's 1H18 result tax rate guidance.
This sees our combined FY18/19/20 EPS forecasts increase by 2.1%.
Recent share price weakness sees us upgrade to Add
Our blended valuation and price target (DCF, PE, EV/EBIT) increases (Morgans clients can log in to view), reflecting the accretion from the acquisition and tax changes. Following recent share price weakness and with an increasingly buoyant growth profile, ATL is screening attractively on 12.4x FY19F PE (11.9x pre-amortisation); 4% yield and offering a solid double digit EPS growth profile. With over 10% TSR on offer, we upgrade our rating to Add (from Hold).
Key risks include increased competition, seasonality, tourism related shocks, P2P movement, FX, movement in fuel price and deterioration of general macro.
Morgans clients can login to view our detailed report and share price target for Apollo Tourism & Leisure (ATL). Alternatively, please contact your nearest Morgans office for access.
Disclaimer(s): Morgans Corporate Limited was lead manager and underwriter to the share placement and rights issue for Apollo Tourism & Leisure Limited and received fees in this regard.
Analyst owns shares.
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