CIBCHave a $125.00 target. GLTA
EQUITY RESEARCH
June 15, 2022 Flash Research
BRP INC.
Investor Day: M25 Targets Updated, Growth Continues
BRP hosted an investor day today and provided updated Mission 2025 (M25)
financial targets. Overall, we believe the company is well positioned to deliver
on its various growth initiatives despite growing concerns around the outlook
for consumer spending. Though macro uncertainties will likely weigh on the
stock over the near term, we believe the upside at today’s levels is
compelling.
Revised M25 Financial Targets Reflect Conservatism: BRP is now
targeting $12B-$12.5B in revenues and $13.50-$14.50 in EPS by F25. The
revenue target does not include the over $1.4B inventory replenishment
opportunity; even if it is not “organic” revenue growth, the opportunity serves
as a backstop to cash flow. The guidance also bakes in ~230bps of EBITDA
margin compression from F23 to F25, which is conservative in our view
considering the tailwinds from supply chain and lean manufacturing
initiatives. The outlook for sales programs is a big unknown, but we believe
dealers operating with less inventory going forward is supportive of sales
programs not fully returning to pre-pandemic levels.
Opportunity To Gain Share In The Growing Powersports Category: BRP
articulated a view that the Powersports industry is poised to grow off a higher
baseline due to strong levels of consumer engagement as well as pandemic
tailwinds (remote work and growth in rural areas). Furthermore, we believe
the company still has significant market share potential, most notably in the
non-premium segments of the side-by-side (SSV) industry where BRP has
under 30% market share in each of the three sub-segments.
Track Record Of Product Innovation Adds Creditability To Marine
Targets: Ongoing product innovation has been a key enabler of BRP’s
success in the last several years and has allowed the company to gain 11%
market share in the North American SSV industry since 2017. This proven
playbook on innovation adds creditability to BRP’s goal to reach $1B in
Marine revenues by F25. The introduction of a completely revamped Manitou
pontoon brings a differentiated product to the market. We expect the rollout
of various Ghost models across multiple price points and brands will position
BRP well to grow its share.
Strong Relationships With Dealers Are A Key Success Factor In
Growing Customer Lifetime Value: The strength of the dealer network has
been a key driver of BRP’s success in the last two years. That said,
management articulated that the dealers still have an opportunity to drive
further engagement in the post-purchase customer experience as well as
strengthen their digital capabilities. This is important in increasing customer
retention and will be a key factor in capitalizing on BRP’s service parts
business.