Date : 11/09/2020

Catapult Group International Ltd

ASX :

CAT

Market Cap : $374.15 Million

Buy

52 Week Range : $0.50 - $2.46

Share Price : $1.96

A stock with high growth forecasts and strong financial health, a stellar product with an increasing user base. We hence give this a “Buy” recommendation.

Company Analysis

Catapult Group International Ltd. (CAT), or Catapult as its widely known as in the sports industry is a technology company from Melbourne that helps athletes and teams improve their performance levels by offering wearable tech devices, software for video analysis, an athlete management tool, and a content management library.

CAT has three price points in their wearable devices – catering to all levels of professional sports, across a wide array of sports, from soccer to basketball to cricket. The products are as below:

  • Vector, (wearable device)
  • ClearSky (local positioning system)
  • PLAYERTEK (analytics solution)

Catapult vision is a single platform for all video analysis workflows, consisting of wearable performance data. Catapult also offers technical analytical solution to its users.

The enablement of this technology helps sport teams monitor performance levels of their athletes and dive into the world of sports analytics to draw inferences for structured decision making for matches and games. The success of their product is demonstrated by some of the biggest sporting institutions religiously using their products. CAT not only impacts individual player performances, it also successfully tracks and measures team performance and tactical awareness with the use of satellites for real-time accurate location data – thereby, giving clients the complete package.

Catapult does not have a direct competitor who is large enough to disrupt the market. Their technology is top of the line and some of the biggest brands in sports are already long-term clients of Catapult Sports.

The diversified product offerings of CAT ensure that it is a one-stop-shop for all things sports performance. This is one of the biggest strengths the company relative to any upcoming technology start-ups that may pose a threat in the future.

Company Updates


Source: TradingView.com

The YTD chart of CAT shows that it is trading at highs. The stock did dip with the Covid19 market slump. However, it has recovered on the notion that it is a technology company’s business model is not affected by the consequences the pandemic has had on the economy. With sport being restarted in most parts of Europe, USA and Australia, the demand for monitoring performance levels has risen and sports analytics industry has seen a growth. The stock is expected to do well because of how the world of sport is changing and the need for more accurate data analytics.

The recent surges have come from CAT posting revenue of $100.7 million, and with new sales contracts signed – it is poised to continue to generate positive free cash flows for FY 2021.

Industry Analysis

Global sports analytics industry is at the peak of its prowess with the enablement and availability of technology and data, respectively. At the end of 2018, the industry stood at a massive value of US$ 774m, with a forecasted annual growth of 32% until 2025.

This is a high growth industry. Technology has already taken over the sports industry and we are seeing more and more athletes and teams enabling technology to improve individual and team performances.

Investment Thesis

Revenues of CAT are on a stable growth trend since 2017. The company also posted an incredible turnaround in its financials by posting record EBITA numbers. Few of the key highlights are below:

  • EBITDA of $13.3 million
  • Positive Free Cash Flow of $9 million
  • 21% growth in subscription revenues to $77.7 million
  • 39% of their clients use more than one Catapult solution

CAT claims their churn level is a mere 6.7% – indicating that only about 7% of their customers do not subscribe the following year. This is an incredibly strong metric suggesting that they retain 93% of their customers who have subscribed to their solution in addition to new sales growth.

Contribution Margin is a metric that determines how profitable the product is, essentially measuring margins for every unit of the product sold. The company posted an increase in margin by around 21%. The margins over FY 2020 stood out at $48.6 million. Contribution margins are forecasted to increase as the revenue of the firm increases and thereby complying with scale and economic theories.

These metrics show us just how strong the performance of CAT has been in the recent years. The financial health of the firm has always been strong. They have enough cash runway to meet any short-term debt obligations. Suggestions of bad financial health on the account of CAT can be dismissed due to their recent performances and a very low debt to equity ratio. This is a high growth company that will become profitable in the years to come as their sales increase and their costs decrease as they reach economies of scale.

CAT has changed their year end to a 31st March end year. Since 70% of their revenue and 47% of their customers come from Americas, the firm has decided to report its future earning in USD and shift its year end reporting date as well. The change in currency does bring macro-economic factors into play.

The delays caused by Covid19 in the sporting world would impact sales cycles of CAT. The company expects some revenues to be generated in Q1 2021, rather than Q4 2020. While the short-term outlook might be affected, there is no cause for concern to the long-term investor.

CAT has mentioned it would increase R&D investments, however, still maintain positive cash flows. This shows us that the CAT is not slacking off but rather it is focussing on growth in the years to come.

Recommendation

CAT is a stellar performer in the industry of sports analytics. It is the biggest player with a diversified product range catering to all levels of professional sports across various sports. A sound financial health and strong 2020 performance is what determines positive forecasts.

We there by give CAT a “Buy” recommendation with its future looking bright with clearly defined strategies and a product that its users love.

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