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Camplify Holdings (ASX:CHL)

High Conviction Buy Update – 13th May 2024

Camplify Holdings (ASX: CHL) has recently lost shareholder confidence and seen its shares dumped for three reasons. You’d be forgiven for feeling dread and panic if you’re a shareholder. After all, it looks like the company is imploding.

Yet nothing that dramatic is actually going on. It’s not on the verge of bankruptcy. A healthy $26.8 million is parked in cash to fuel future acquisition growth. It’s still in a massive growth phase, although the latest half was less explosive than we – and apparently the market – had hoped for.

Plus, it has already achieved positive cashflow in the last half year report.

This could be a rare golden buying opportunity in a heavily oversold stock worth jumping on.

All stocks have risks, and the current sell-off is exactly what we warned could happen with CHL when we pitched it. We expect volatility to remain high as any news hits the market, as we pointed out in our last update:

With its mammoth growth, the stock has been priced with a high valuation. This leads to periods of high volatility when results disappoint or exceed expectations.

So, let’s look at the updated news flow, the reasons for the sell-off, and our updated recommendation.

Updates

As already mentioned, there have been three major developments that have put a dampener on the share price. Let’s look at them one by one.

21st February 2024: H1FY24 Results Released

We already addressed the first-half results in our last update. However, as we noted back then, they created a bearish tone. We took the view that the short-term price weakness was a good buying opportunity.

Certainly, for a few days, that was the case. The price rebounded strongly after we reconfirmed our buy recommendation, with a whopping 34% recovery from trough to peak in just four days.

The biggest concern in the results was the slowing in new RVs being listed on the platform. As we noted in our last update:

The other thing that could have investors spooked is this next chart. In particular, we can see on the right that the growth of RVs on the platform has slowed dramatically. We know they only have a small percentage of the available market, so the opportunity exists.

While 19.7% growth in RVs to 29,388 is no small number, this stock has very high growth expectations. So, the market is reacting to the apparent slowdown. Given that demand exceeds supply on the platform, the supply of new RVs on the platform is our best leading indicator for future growth.

Source: Camplify 1H24 Results Presentation

Another concern from the first half result was forward bookings growth, which was just 4%. However, as we explained then, this doesn’t reflect the underlying business, as there was a large lump of TAP bookings that weren’t repeated.

TAP is essentially temporary accommodation for people affected by natural disasters. It was a very clever scheme that the company put in place to use RVs that were underutilised during the slower season. However, as TAP booking demand relies on natural disasters, we can’t expect consistency.

The last thing investors may have disliked was the acquisition of a tent hire company. It’s unclear whether this is a good strategic fit. However, it was a minor acquisition. Not the stuff of widespread panic.

7th March 2024: THL sells shareholding in Camplify

The next event was Tourism Holdings Rentals (ASX: THL) announcing that it had dumped its 14.4% stake in Camplify. Surely, if anyone knows the industry, it’s one of the biggest players.

You see, THL is the world’s largest commercial RV rental operator. It rents RVs out to tourists in Europe, North America, Australia and New Zealand under the brand names of Maui, Apollo, Britz, Mighty Campers, Cheapa Campa, Hippie, Road Bear, El Monte RV, CanaDream, Just Go and Bunk Campers.

Talk about the illusion of choice!

THL also designs and manufactures RVs under the brand names Kea, Talvor, Winnebago, and Windsor and sells them through its showrooms.

So, the company has a massive chunk of the RV market, and should have a great view of the whole market landscape.

So when they sold their stake in CHL, the market paid attention.

Right when the share price was stabilising after the half year result, it was hammered back down to the same price low of $1.725 before consolidating above $1.80. Not so bad, given the trading volume on the day that they dumped stock was 10.3 million shares, up from just 40 thousand shares the day before.

THL attributed the decision to its focus on Return On Funds Employed (ROCE). Given that CHL has not yet reached profitability, the $19.2 million THL could release from the investment would improve their ROCE.

So are they that short-term focused over at THL, or is there more to the story? Another statement from the release gives us more clues, with CEO Grant Webster commenting:

We continue to believe the peer-to-peer RV rental industry is a valuable one, and we remain open to re-entering it at some point in the future.

It almost sounds like they plan to compete directly with CHL. Except they already do. Every rental facilitated through CHL’s platform doesn’t go to Apollo, Britz, or Maui.

So maybe it makes sense for THL to own CHL fully or not at all. That opens the prospect of either a takeover bid in the future or the company attempting to create its own marketplace platform, which may be difficult if CHL already has a first-mover advantage.

Just recently, however, we got a further glimpse into the state of affairs over at THL. It’s clear now that perhaps dumping the CHL stock wasn’t about CHL, but about problems at home.

Let’s take a look.

6th May 2024: THL Reduces FY24 NPAT Guidance

THL came to the market, hat in hand, with some really bad news.

Market conditions have deteriorated more rapidly than anticipated

Specifically, NPAT guidance was revised from $75 million lower to $50-53 million. Sales volumes and margins have declined rapidly. Over 50% of the pain comes from the Australian Retail Dealership division.

THL is in the RV rental business, so that’s bad news for CHL, right? Not necessarily. As THL pointed out, the rental division is generally ticking along just fine, with most markets meeting expectations. The exception is the Australasian shoulder season, which has seen lower forward bookings, which is expected to lead to lower rentals than forecast for the remainder of FY24.

Despite rentals looking weak for the next few months, the current forward bookings into the 2025 high season show strong growth across global markets, except for Australia, which is tracking in line with the prior year.

THL is forecasting an FY25 NPAT of $77.1 million, lower than what was achieved in FY23. Rental volumes are showing general growth, while yields are slightly down. So, we expect the rental arm to be relatively growth-neutral into FY25. It’s really due to lower sales volumes that the company is downgrading its forecasts for FY24 and FY25.

Australian and New Zealand H2FY24 vehicle sales are THL’s biggest losers. The result is a shortfall of NZ$13.5 million on forecast.

Source: Tourism Holdings Rentals

THL has gone out of its way to reassure shareholders that it’s ‘…forecasting to be compliant with its (debt) covenant assessments for the 30 June 2024 quarter. However, it will engage with its banking syndicate to seek to amend its covenant package to better reflect current trading conditions.

And there we have it. A solid reason to offload all non-core assets, such as a highly liquid investment in an externally listed company.

THL is scrambling to shore up its balance sheet. The company is vulnerable and taking every step to keep its bankers happy.

The CHL disposal is not really about CHL. It’s about THL’s core market deteriorating very quickly, creating the potential for a breach of lending covenants.

The best part for CHL is that the rental market still looks robust. So, we have no reason to think their business will be dramatically impacted. In fact, a lower number of RV sales may lead people who have put off buying to become renters.

The tough part is that CHL’s challenge has always been to get more RVs onto the platform. They have the renters lining up already. So, with THL struggling to offload their RVs, is there an opportunity for CHL to pick up its own in-house fleet on the cheap?

It’s certainly an avenue CHL could explore. They’re cashed up after all.

Outlook

We had previously discussed the prospect of CHL hitting profitability, or at least cashflow positive in FY24. In our last update, we noted that all analysts covering CHL forecast profitability in FY24, with the average expected EPS of 0.7 cents.

These forecasts have since been pared back, with the average forecast now at a loss of 1.6 cents and a profit of 1.8 cents in FY25. The FY25 EPS forecast sits at 3.8 cents.

As previously discussed, the slew of acquisitions should open many growth avenues for the business. However, in the short term, we expect some cost increases. Synergies take time to achieve.

Growth is hard and messy. CHL is one of our riskier High Conviction Buys, but it still holds a lot of promise. What we know for sure is that volatility will continue.

THL’s woes are a warning shot to CHL investors. Will the company feel the pain as well? It’s just as possible that it will be a big boost to their growth plans. But that doesn’t detract from the short-term pain of seeing the share price tank.

But if you’re following along with us on these picks, you’ll know we aren’t in these High Conviction Buys for the short term. These are picks for the long haul. CHL is a five-year play, realistically.

The stock still has a lot of promise. It’s just cheaper now.

The analyst community’s average price target for CHL is $2.94, broadly unchanged from our last report. This implies a potential 96% upside on current prices.

We expect to see continued growth in GTV and revenue. A positive cash flow would be nice to see on an ongoing basis, and the company seems to be on that track. However, it’s not a priority with such a strong cash balance. Adding more RVs to the platform is more important in the short term, and we trust that cash flow will follow.

Recommendation

THL is thrashing around like a drowning man, bringing CHL down with it. But let’s not jump at shadows. THL is still profitable, albeit they’ll make less money for a while. If they can keep their lenders happy, then there’s no reason to think they’ll need to close the doors anytime soon.

The core growth story of CHL is still in place. We see no reason to panic about this sell-down, as it’s related more to news out of THL than anything to do with CHL.

Our recommendation is simple: Ignore the noise and focus on CHL’s still largely intact fundamentals. The current sell-off is an opportunity. If you’re not in this one already, we suggest giving it a look.

We recommend a ‘BUY’ on Camplify (ASX: CHL) with a buy up to price of $2.50 and an anticipated holding time of 3-5 years. We would sell above $4.20 in the short term.

Camplify is a small cap growth stock. If you do decide to enter, expect continued volatility.

From a technical perspective, the stock is in free fall. The next support is not until $1.19. However, with the company already achieving positive cash flow in H1FY24 and about 20% of its market cap sitting in the bank as cash, it’s hard to see the sell-off reaching $1.19. That would likely require more bad news to hit the headlines.

So, there’s no obvious entry point except to say that it already looks like good value. A price consolidation above $1.60 would give us confidence that buyers are coming back.

Source: TradingView / Shares in Value

 

1H24 Earnings Analysis – 22nd February 2024

Camplify Holdings recently made it into our high conviction plays list. The company’s primary business is a digital marketplace for RVs (Recreational Vehicles). It connects RV owners with people who want to rent them. Think of them as the Airbnb for motorhomes, campervans, and similar vehicles.

We’ve just seen their first half-year result (1h24) come out since our recommendation. They’ve posted big numbers, but the market has been spooked, leading to a sell-off on the announcement day. The stock has traded as low as $1.80 intraday, representing a 25% drawdown on the prior day’s close.

The market is not happy with CHL.

So, let’s dig into the numbers and what has holders so spooked.

Gross Transaction Value (GTV), the total value of all transactions that CHL facilities, hit $89.3 million, an increase of 93.6% on 1H23.

Revenue was up 95.4% to $24.3 million. Gross margin increased from 58.1% to 61.4%. The average booking value decreased to $1693 due to reduced TAP bookings.

TAP is the Temporary Accommodation Program, whereby CHL facilitates medium-term housing for communities affected by natural disasters such as floods and fires.

At the bottom line, the company recorded a statutory loss after tax of $3 million. On the surface, this may look like little is improving, but we have to keep in mind that this is a company in the middle of strong growth and with recent acquisitions.

Excluding the impact of acquisition integrations and other one-off expenses, normalised EBITDA came in as a loss of $1.4 million, an improvement from the loss of $1.8 million in 1H23.

Key metrics from the 1H24 Result include:

  • GTV up 93.6% to $89.3 million
  • Revenue up 95.4% to $24.3 million
  • Gross margin 61.4%
  • EBITDA loss reduced by 22% to $1.4 million
  • NPAT Loss reduced by 10.1% to $3.0 million

CHL does not currently pay a dividend. As the stock still has a very strong growth runway ahead, we expect to see all cash flow reinvested in the business for at least 3-4 years, so this is certainly not a dividend play.

Growth Metrics

The total number of RVs on the platform increased by 19.7% to 29,388. This is a strong focus area for the company since there has been plenty of demand for the service, and the supply of vehicles has been the limiting growth factor.

We expect this to remain a core focus for some time. CHL’s whole business model is predicated on unlocking the latent value in underutilised RVs. So, they must attract RV owners to list their vehicles as quickly and cost-effectively as possible.

Bookings increased 59% to 44,782. Meanwhile, future bookings at the end of the period stood at $26 million, up from $23.7 million. This excludes the contribution of PaulCamper and TAP bookings. So it is directly comparable to the previous period.

The primary thing we want to focus on with the company at this stage is GTV growth, which is the total value of all transactions they touch. We are more concerned about this than things like revenue and profit because we expect the company to use every trick possible to gain scale in this high growth phase.

That means discounting, special offers and all kinds of other promotions.

The key to Camplify’s business model is the network effect. It’s the same reason we all know the name Airbnb, but most of us would be hard-pressed to name a competitor using the same business model. How many people know of Vrbo?

Airbnb is the name we think of when it comes to short-stay rentals in a private house or unit. They are also the best example of the kind of business that CHL is trying to be.

Well, in the early stages of a bright idea like a platform for private room rental or RV leasing, word gets around, and a bunch of competing products start to emerge. Then, we get a race to see who can capture the market first. The winner is the offering that manages to become the known brand in that segment.

The big profit comes after they’ve won the market.

So, what we care about most now with CHL is to see that they are winning the market and gaining the network effect. We see that in the total value of all transactions they touch – GTV.

The nice thing about this business is that it is not burning cash, even though it is in this high growth phase. They generated $0.1 million in net cash flow for the half. They are sitting on $26.8 million in cash, a healthy war chest to continue acquisitions and their growth campaign. We don’t expect they’ll need to raise cash again anytime soon unless it’s for a particularly large acquisition target.

By region, we saw strong growth across the board. A reduction in TAP bookings impacted booking growth in Australia, but underlying growth remained strong, with a persistent theme of demand exceeding the platform’s ability to supply.

Source: Camplify 1H24 Results Presentation

Investors Spooked

So, with all this positivity abounding, it’s worth asking why the sell-off on results day. The market reaction was surprising. It is likely partially linked to the 4% booking growth seen in Australia, which, while it looks low, is simply a consequence of the sporadic nature of TAP bookings. Underlying growth remains robust.

It’s also worth remembering that growth companies will continue to expand until they hit the bottlenecks of a particular issue holding them back. You’ll see those flat spots show up in many growth stories. Successful businesses figure out what’s happening, find a solution, and continue growing. But those small periods of stalled growth still show up. It’s unrealistic to expect a constant linear growth trajectory.

The other thing that could have investors spooked is this next chart. In particular, we can see on the right that the growth of RVs on the platform has slowed dramatically. We know they only have a small percentage of the available market, so the opportunity exists.

While 19.7% growth in RVs to 29,388 is no small number, this stock has very high growth expectations. So, the market is reacting to the apparent slowdown. Given that demand exceeds supply on the platform, the supply of new RVs on the platform is our best leading indicator for future growth.

This may lead to a bigger marketing budget for a time to push through this current slow patch and achieve that network effect with RV owners. This could delay the path to profitability, but it’s simply a matter of successfully targeting and attracting RV owners.

On the plus side, the excessive demand means we may see price rises from RV owners.

Source: Camplify 1H24 Results Presentation

There’s one last thing that could be spooking investors, and that’s the recent acquisition of a tent company. At first glance, when you see an acquisition like that, you groan, shake your head and reach for the sell button. However, there is a very well thought out rationale for the otherwise seemingly non-core purchase in this case. We’ll discuss it in depth in the next section.

Acquisitions Continue

Camplify has followed the Airbnb playbook of global expansion by completing a $47.6 million acquisition of German RV hire business, PaulCamper, to add to global operations. The transaction settled in December 2023, and the new business unit was moved onto the Camplify global OnePlatform in 3Q24.

Given the seasonal nature of demand in the business, it will take some time to see the full impact of PaulCamper on the results.

The company operates in multiple countries, including Australia, New Zealand, Spain, Germany, the Netherlands, and Austria. Additionally, they added another brand under their umbrella, MyWay, an insurance division providing protection for renters and owners.

CHL announced another recent acquisition of Rent a Tent, based in Australia. The purchase occurred in January 2024. On the surface, it’s a confusing acquisition. A company that provides a platform for RV rental bought a bunch of tents to rent out for festivals. Well, there is a rationale behind it. The company sees it as an opportunity to deliver off-peak earnings growth opportunity.

Organising festivals is a complicated and messy affair. Event organisers look to minimise the number of contractors and consolidate roles wherever possible. CHL hopes that by providing the tents to festivals and other events, they can offer RVs as a premium option. In theory, it makes a lot of sense. It’s a very considered approach to addressing the seasonality of their business model.

Whether or not it works, we’ll have to wait and see. However, we certainly like the out of the box thinking.

CHL believe they can quickly expand on the existing business offering, making it more efficient and profitable. There’s also the opportunity to expand into new geographies.

The company already has contracts coming up for events in 2H24 including:

  • Port Fairy Folk Festival
  • National Folk Festival
  • CMC Rocks QLD
  • Birdsville Big Red Bash
  • Pitch Music & Arts

So, we will soon see if they can leverage some extra RV bookings in their off-season.

On the acquisition front, CHL is cashed up with $26.8 million in cash, so we can certainly expect they will be shopping for more growth targets.

Outlook

CHL is trying to balance many moving parts, with multiple acquisitions and new products still in the rollout phase. We expect to see some bumps and failures along the way, but overall, they seem well-positioned for solid long-term growth.

A key project for FY24 is the continued rollout of MGA Myway insurance. This is an easy upsell that will add revenue and profit to the business and give customers peace of mind in dealing with the platform, improving its ease of use.

We expect organic growth will continue strongly, only limited in the short term by the company’s ability to attract new RV owners. There may be more acquisitions, and the company is certainly cashed up enough to go after other businesses.

However, there’s still a lot of integration work to be done on their recent acquisitions, and we hope to see further synergies realised in the next twelve months.

Costs will certainly increase as the business scales, and in the short-term we expect marketing and employee expenses to stay fairly steady as a percentage of revenue. Certainly, the company is tracking and reporting those metrics, and we’ve seen both fairly steady.

As far as the analyst community goes, CHL is gaining some coverage. There’s an average price target of $2.97 on the stock, providing a potential 48.5% upside.

All analysts expect CHL to hit profitability in FY24, with the average EPS coming in at 0.7 cents, rising to 3.5 cents in FY25 and 5.5 cents in FY26. This implies a forward PE of 286 for FY24, 57 for FY25 and 36 for FY26.

These numbers have a high degree of uncertainty, but a strong growth expectation exists. And that has clearly been demonstrated after the stock sold off as much as 25% on the day it delivered 95% revenue growth.

We expect to see continued growth in GTV and revenue. A positive cash flow would be nice to see on an ongoing basis, and the company seems to be on that track. However, it’s not a priority with such a strong cash balance. Adding more RVs to the platform is more important in the short term, and we trust that cash flow will follow.

Recommendation

This growth niche marketplace stock is clawing out a market leadership position. Growth stories like this that are still in the early phases bring the potential for big gains but also a high dose of risk. CHL has the potential to grow strongly for years to come and could generate robust, healthy dividends in 5+ years.

Alternatively, they could make a great takeover target for a company like Airbnb, as it is still relatively small and cheap.

With its mammoth growth, the stock has been priced with a high valuation. This leads to periods of high volatility when results disappoint or exceed expectations. For us, this recent pullback is a great buying opportunity for a company still delivering strong underlying growth.

We recommend a ‘BUY‘ on Camplify (ASX: CHL) with a buy up to price of $2.50 and an anticipated holding time of 3-5 years. We would sell above $4.20 in the short term.

From a technical perspective, a strong rising support is currently at about $2, shown in blue below. This support is being thoroughly tested with the current sell-off, opening the path down to a strong long-term horizontal support level at $1.70.

If price can regain and hold the rising support in the next month or so, we would consider this very bullish with further upside likely.

Source: TradingView / Shares in Value

 

 

Camplify Holdings (ASX: CHL) – Initiation – High Conviction Buys – 21st January 2024

Who is Camplify?

Headquartered in Newcastle, NSW, Camplify is a platform company that operates a digital marketplace for RVs (Recreational Vehicles). It connects RV owners with people who want to rent them. Think of them as the Airbnb for motorhomes, campervans, and similar vehicles. The aim is to make RV travel accessible and enjoyable for everyone while RV owners can unlock the potential of their vehicles and earn additional income. Camplify provides everything both parties need for a secure transaction: the platform, payments, bonds, roadside cover, and insurance.

Camplify has followed the Airbnb playbook of global expansion by completing a $47.6 million acquisition of German RV hire business, PaulCamper, to add to global operations. The company operates in multiple countries, including Australia, New Zealand, Spain, Germany, the Netherlands, and Austria. Additionally, they added another brand under their umbrella, MyWay, an insurance division providing protection for renters and owners.

Camplify is like Airbnb on Wheels

There is a lot of demand for RVs and campervans from holidaymakers, particularly among the younger generation seeking more bang for the buck. Holidayers have long sought cheaper modes of transport and accommodation in vast and high-cost regions such as Australia, NZ, and Europe. Camplify is solving this problem. In fact, their challenge so far has been satisfying holidaymakers’ demand for vehicles. Camplify has seen customers land on their platform organically, especially in Australia. Therefore, their strategy has so far been concentrated on acquiring fleet.

Last year, Camplify saw an 186% increase in total RVs on the platform to 28,399 and managed to attract 494,068 customers. Total bookings and the average value of each booking are growing significantly, making a strong case for Camplify to become the Airbnb on Wheels.

The Campervan travel market is quite seasonal. European and NZ winters are harsh, and seasonality charts show reduced demand for outdoor activity. But with exposure to the Northern and Southern Hemisphere markets, we are confident that Camplify can perform positively through the cycle.

Camplify has recently begun a Temporary Accommodation Program, whose performance has surprised everyone on their recent earnings call. This innovative disaster relief program leverages vans to provide crucial support in impacted areas. Its effectiveness was evident during the NSW floods, where it facilitated 479 bookings and generated $20.6 million in GTV (Gross Transaction Value). The CFO estimates this translates to roughly $6 million in revenue, a figure prompting serious consideration of the program’s scalability across international borders. With natural disasters increasing, this segment can prove a considerable spark to already growing revenues.

How to Play Camplify?

Camplify delivered on its strategic objectives for FY23 and experienced 3 consecutive net cash flow positive quarters from operations. They are focused on profitability, and FY24 is being touted as the year the company turns profitable. This expectation is priced in by the market, and we think Camplify is in a comfortable position to deliver. Organic growth is rolling in, and the PaulCamper acquisition’s integration into the Camplify platform will bring in synergistic benefits imminently.

In the long term, Camplify’s growth story depends on how big the market is. More people have a second home or a spare bedroom than campervans sitting in their driveway. So, we are not suggesting that Camplify can grow to be as big as Airbnb.

However, they have a significant growth runway ahead as Camplify is estimated to have only captured 2% of the total addressable market in all their regions of operation. The addition of the insurance business adds another revenue stream, one that complements the main offering. It’s also reasonable to anticipate further acquisitions in the coming years to bolster growth and enter new markets.

The CHL share price is consolidating sideways after an initial spike higher after listing. Price is nearing the end of a triangle, as shown in blue. A break of the triangle is imminent, and there is a small chance it will lead to a breakout in either direction.

Until further catalysts are hit, the base case is for further sideways consolidation. We favour an initial entry around current prices. Quarterly revenue updates will be opportunities for price volatility, and hitting profitability in FY24 could be a big catalyst for turning the stock bullish. For this reason, we want to be positioned before the FY24 results are released.

We are happy to buy up to $2.50 and anticipate holding for 3-5 years. Sell above $4.20.

Source: TradingView / Shares in Value

 

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