Catapult Group International Ltd


CAT Details

Positive guidance: Catapult Group International Ltd (ASX: CAT) had upgraded the forecast for its sales and forecasts the number of units sold to be 56% which is an increase of up to 8,000 units in FY 16 as compared with FY15 while the total contract value (TCV) is forecasted to be $24.5 million in FY16 which is up by 42% as compared with FY15. The company estimates that the revenue growth will be from the subscription business, the starting point of approximately $9.4m ARR which would go into H2 FY16. In the first quarter of FY16, Catapult had sold 1,407 units which was up 28% as compared to the corresponding first quarter 2015. In the second quarter of FY16, CAT sold 2,000 new units which was up 66% as compared to corresponding period of 2015. In the third quarter of 2016, CAT has sold 2,085 new units which is up 118% as compared to the third quarter FY15. As per the third quarter of 2016, Catapult had achieved 69% of Management’s FY16 guidance for unit orders. Management’s estimates more than 90% of the addressable market is analyzing the product category and competitive market forces continue to be weak to moderate. Meanwhile, the group had raised over $6 million through institutional placement of new ordinary shares to fund the expansion of its sales and marketing platform globally for the growth. Management expects that this investment would reach the full effectiveness over the coming year.
 

CAT’s Unit Orders (Source: Company Reports)
 
Bottom line pressure: CAT has reported a loss after tax of $2.61 million in the first half 2016 which is just 1% improvement from the corresponding period of 2015 via the revenue had increased 58% to $7.01 million. The underlying EBITDA has grown only 4.6%, despite the company has taken accelerated growth strategy. The EBITDA is affected by the cost relating to $6 million via capital raising and $12 million IPO, as well as due to the litigation expense of $348k in first half of 2016 which is related to the action against Statsports to enforce Catapult’s intellectual property rights. The company’s fleet of devices utilized in generating subscription revenues has depreciated over four-year product life. The revenue growth in the first half 2016 is due to 75% increase in TCV to $14m from $8.9m in H1 FY15 as well as due to rapid expansion of recurring revenues from subscriptions. The revenue from offshore regions in the 1H 2016 was up by 67% from $3.2m in H1 FY15 to $5.3m. The offshore gets 75% of revenue from unit sales. The US business has posted 71% revenue growth driven by subscriptions, but some churn in US sales team has impacted the first half of performance. The company is expecting stronger H2 FY16 sales as there would be buying season in US and sales team is established better. The Europe business has seen growth in sales but ROW delivered $0.3m in revenue in H1 FY16. The Asian business has difference between TCV and revenue, due to difference between order and delivery plus an early subscription adopter.  The revenue from Asia- Pacific had increased 318% in 1H FY16 as compared to corresponding period of 2015. The business of Australia earlier did not demonstrate great growth as the business has reached mature stage but now has been revived through League Wide deals.
 
              
Global Market Opportunity (Source: Company Reports)
 
Building Client base: CAT has signed the third league wide deal with US National Women’s Soccer League in the United States which includes 275 subscription units tracking the athletes in all 10 league teams, plus the Women’s US National team and several national youth teams under NWSL in the third quarter of 2016. The deal would enable the league to standardize the approach to athlete tracking and centralize the data collection across elite level women’s soccer in the US. CAT has received the first US high school orders from Bradley Bourbonnais in Illinois and Whitfield School in St Louis through the GPSports brand. In the March quarter of 2016, the subscription orders accounted 54% of all orders vs 39% over the same period in FY15. On the other side, to increase the number of units sold, Catapult has entered into agreements with NFL and NBA teams, field and ice hockey teams, as well as with the teams in the English Premier League. The new league-wide agreements with the Australian Rugby Union and Australian Football League (AFL) are done to generate revenue under the new long term subscription arrangements. The agreements have been done to broaden the potential uses of data for analytics and monetization opportunities in partnership with these leagues.
 
Stock Performance: The shares of CAT have already generated over 205.94% returns in the last one year (as of June 22, 2016) and trading near the 52-week high levels. The stock was driven by the sales upgrade guidance by the firm along with positive developments like agreements, capital raising to fund growth and the overseas expansion. But, CAT’s bottom line looks challenging which could inhibit the stock’s growth in the coming months. We believe that investors need to book their profits and exit the stock at current levels and accordingly, we give a “SELL” recommendation on the stock at the current price of $3.09
 

CAT Daily Chart (Source: Thomson Reuters)

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