One Small-Cap Recovery Play to Punt On – MBUU

Jun 17, 2021 12:00 AM PDT | Team Kalkine
One Small-Cap Recovery Play to Punt On – MBUU

Malibu Boats, Inc.

MBUU Details

Malibu Boats, Inc. (NASDAQ: MBUU) is a designer manufacturer, marketer of performance sports boats. It operates through three segments Malibu, Cobalt, and Saltwater Fishing. MBUU’s boats are used for water sports, including water skiing, wakeboarding, and wake surfing, as well as general recreational boating. It operates through a network of independent dealers in Europe, Asia, the Middle East, South America, South Africa, and Australia/New Zealand. As of June 16, 2021, the company’s market capitalization stood at USD 1.48 billion.

Inorganic Growth to tap untapped demand: On January 05, 2021, MBUU completed the acquisition of Maverick Boat Group in a USD 150 million deal. Maverick is a leader in center console and bay boat categories, it enhances MBUU’s saltwater outboard offerings by adding four strong brands to its portfolio. It also aided the company in enhancing its production capacity thus enabling it to capture untapped demand.

3QFY21 Results: The company reported total revenue of USD 273.16 million for Q3FY21 (ending March 31, 2021) as compared to USD 182.31 million in Q3FY20. The expansion in the topline was a result of volume growth and favorable pricing. Malibu sold 658 additional units and improved its selling price per unit by 9.7% in Q3FY21 as compared to Q3FY20. The impact of enhanced operating efficiency due to the acquisition of Maverick is visible in an increase in operating margin by 70 bps. The company reported an operating income of USD 46.86 million in Q3FY21 which showed a YoY growth of 55.52% over USD 30.13 million in Q3FY20. The net income for Q3FY21 stood at USD 33.80 million in contrast to USD 22.78 million in Q3FY20, up by 48.37%.  

Key Risks: MBUU’s network of independent dealers accounts for the majority of its sales. The agreements with the dealers are typically one year in length, though some agreements are up to three years long. For fiscal years 2020, 2019, and 2018, the top ten dealers accounted for 38.5 percent, 39.6 percent, and 37.8 percent of net sales, respectively. In addition, the company significantly relies on suppliers such as General Motors and Yamaha for their engine requirements. The acquisition of Maverick may have mitigated the dealer and supplier concentration risks to some extent, but they remain significant risks.

Outlook: AS of Q3FY21, the company expects to achieve 38% YoY growth in net sales along with an EBITDA margin of 20.5% in FY21. Additionally, it estimates significant wholesale demand to restock its dealer inventories as a result of lower dealer inventory levels through FY22 and beyond. Through FY22, MBUU expects lower dealer inventory levels to support its wholesale shipments and financial performance. This strength is expected to continue into FY23.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MBUU Daily Technical Chart

Stock Recommendation: MBUU has decreased by 20.07% in the past 3 months and is currently trading at the mid of the 52-week range of USD 46.37 to USD 93.00. The stock is currently trading close to its 200 DMA level. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 80.81. Considering the correction in the stock price in the past 3 months, robust standing in the market, growth initiatives while maintaining balance sheet strength, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 70.34, down by 1.00% as of June 16, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.