Camplify Holdings: Mighway and the highway

About the author:

Steve Sassine
Author name:
By Steve Sassine
Job title:
Associate Analyst
Date posted:
29 October 2021, 7:00 AM
Sectors Covered:
Diversified Financials

  • CHL has entered into an agreement to acquire Mighway and SHAREaCAMPER NZ/AU from Tourism Holdings (THL) for up to ~A$7.4m (all scrip).
  • The deal sets up CHL to be the dominant P2P RV platform in ANZ, with a strategic relationship with THL also offering additional marketing/revenue benefits.
  • We alter our FY22F/FY23F/FY24 EPS by -2-+38% factoring in the deal, stronger take-rate assumptions and higher longer-term revenue growth forecasts. Our price target increases to (login to view) on the above changes.
  • We had recently moved to a Hold pending further catalysts post a strong share price performance, however, now with > 10% TSR post this acquisition, we move back to an Add.

Event

Camplify (CHL) has entered into an agreement to acquire Mighway (MW) and SHAREaCAMPER NZ/AU (SC) from Tourism Holdings Ltd (THL). The purchase consideration is up to A$7.37m (pending any final adjustments).

The acquisition elevates CHL to now be the largest peer-to-peer (P2P) marketplace in both Australia and New Zealand.

CHL is now positioned to take advantage of the domestic market reopening as State-based border restrictions ease as well as the return of international tourists to New Zealand (we understand pre-COVID, Australians were 39% of all tourists in NZ, with ~70% opting for self-drive holidays).

A strategic relationship has also been established between CHL and THL, which will see the companies work on growing the Camplify brand and utilising THL’s RV Supercentre’s (RVSC) to manage CHL RV owners vehicles in both Australia and NZ (margin accretive).

In our view, a good addition to the CHL business, allowing it add scale in the key NZ market as well as opening up additional service/revenue opportunities via the new strategic relationship.

Deal summary and thoughts

The A$7.37m consideration represents a paid multiple of 5.46x FY21 revenue, with both businesses heavily impacted by COVID over the last financial year (~A$2.4m GTV in FY21 vs ~A$7m GTV in FY19).

The all scrip deal will be issued in two equal tranches, with the first issued on deal completion (30 Nov) at A$3.34 (20 day vwap) and second tranche issued 12 months post completion (lesser of A$3.34 and 60 day vwap, with floor of A$1.42). Issued shares will be escrowed for 18 months.

The deal will see ~1k RV’s in NZ and 122 in Australia come onto the CHL platform, along with a database of ~2.5k RV owners and an additional hirer base of 10k. In our view, the now 1.4k NZ RV fleet should provide enough scale for CHL to penetrate the ~A$125m GTV market (FY19).

Given MW and SC had ~6% share of GTV in FY19, we anticipate market share for the combined NZ business to broadly double by end of FY23 given:

  1. Increased fleet size.
  2. Leveraging THL’s cross-marketing.
  3. Lower churn rate as dormant RV’s are put to use once tourist activity picks up.
  4. The flywheel effect once CHL is appointed a dealer (providing owners access to THL’s ex rental fleet and newly manufactured products).

In addition to the managed service product that CHL will now offer its owners via THL’s RVSC’s, the 4 key NZ locations of these will not only open up cross-marketing opportunities but also additional service offerings (e.g. one-way rentals).

Forecast and valuation update

We alter our FY22F/FY23/FY24F EPS by -2%-+38% factoring in the acquisition consideration, stronger take-rate assumptions and higher longer-term revenue growth forecasts given the now dominant P2P market position across ANZ (and additional ancillary service offerings).

Our valuation is derived using an equally-weighted blend of a DCF and relative value methodologies.

Our price target increases to (login to view) on the above changes. We initially moved to a Hold pending further catalysts, however, now with greater than 10% TSR post this acquisition, we move back to an Add.

Investment view

CHL’s management team has shown an ability to build out a successful, scalable platform.

We continue to like the CHL model, particularly the prodigious growth opportunity both domestic and offshore.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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