Catapult Group International Ltd

CAT Details

Catapult Group International Ltd (ASX: CAT) is engaged in the development as well as sale of the performance and health technology solutions, consisting wearable tracking as well as analytics, to elite sporting teams, leagues, and associations.

Results Performance (Year Ended 31 March 2021)

Free Cash Flow of the company for the full year period stood at $4.9 million, an increase of 68.6% on previous year, which is a second consecutive year of positive free cash flow while maintaining the level of R&D investment. CAT’s focus on growing recurring revenue delivered subscription revenue growth of 3.3%, buoyed by 16% growth in Performance and Health. The company’s revenue & EBITDA were down as it switches from capital sales to higher-quality margin SaaS deals and the impact of COVID-19.

Key Data (Source: Company Reports)

Outlook:

The company is confident towards its long-term strategy of expanding ACV to 10x of its current size. For the short term, the company expects negative impact on revenue, EBITDA, and margins from lower capital sales (now recognized over a subscription life) while associated variable operating costs are still recognized upfront, while for the long term, the company would be targeting higher gross margin and EBITDA margin associated with subscriptions (improved customer experience, retention, and pricing).

Key Risks:

In executing the growth plans, CAT is subject to the market, operational and acquisition risks including COVID-19 risks, economic risk, industry and competition risk and risks associated to cyber security.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation:

The company reported strong and accelerated growth momentum in the key SaaS metrics for FY21, as the negative impact of the pandemic is abating in the sports industry. Annualized Contract Value (ACV), CAT’s leading SaaS metric, grew globally at the 35% annualized rate during the second half of FY21 against a full-year growth rate of 16.5%.

The stock rose by ~57.71% in 1 year. It has made a 52-week low and high of $1.070 and $2.460, respectively. On the technical front, the stock has a support level of $1.673 and a resistance level of $2.210. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). We believe that the stock might trade at a slight discount as compared to its peer average EV/Sales (NTM trading multiple) as revenues and margin are expected to be under pressure due to the change from capital sales to SaaS deals. We have taken peers like Reckon Ltd. (ASX: RKN), Infomedia Ltd. (ASX: IFM), Computershare Ltd. (ASX:  CPU), to name a few. Considering the current trading levels, valuation, change in revenue model, we suggest investors to book profit and give a “Sell” rating on the stock at the current closing price of A$2.200 per share as on June 1, 2021.

Daily Technical Price Chart

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

• Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

• Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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