SA Catana Group, PE < 4, double digit growth, temporal headwinds.
Growth story at bargain valuation
Investment Report
*The report has been updated with a new valuation model as of 14/04/2025
Key points:
Revenues have increased 6-fold in the last decade thanks to the launch of the BALI brand.
The market fears that the sector will slowdown and that the company will not be able to repeat the success of the BALI brand.
The company has leading margins in their sector.
The company has very low expectations priced in, P/E of less than 4 while long term growth is expected to be continued.
1. Overview:
SA Catana Group, a leader in the luxury catamaran market, stands out for its innovation, quality, and high-performance vessels. They have been a growth story over the last decade where they have been able to grow revenues by over a 20% CAGR thanks to the succes of their BALI brand.
They have two main product lines and are preparing to launch another one. Their latest product line, “BALI,” was a complete success and helped the company grow its revenues sixfold over the last decade. The market is currently pricing in a slowdown in the boat market, resulting in the company trading at an extremely low valuation, which creates an opportunity for value investors. With the expectations priced into the stock being very low and the catamaran market expected to grow at a 6% CAGR, the stock has significant upside potential as it only trades at a P/E of less than 4 and has an ongoing buyback programme.
2. Product Lines:
2.1 Catana Catamarans:
Catana catamarans are renowned for their luxury, performance, safety, and comfort. The brand has established a strong market presence with its semi-custom design approach, allowing for tailored layouts, decor, and equipment to meet individual owner desires.
2.2 Bali Catamarans:
Bali catamarans have been a significant growth driver for Catana Group, thanks to their innovative designs and unique features like the "Bali door" and adaptable spaces. The Bali line continued growing in the last semester, contributing substantially to the company’s 11% revenue growth in a market that is slowing down. Bali catamaran prices range between half a million and more than one and a half million euros. The Bali brand alone represents nearly 95% of the Group’s turnover. This brand gives the company a competitive advantage over their competitors due to customers being highly satisfied with these models.
2.3 YOT Motorboats:
The new YOT motorboat brand is expected to begin significant billings in the 2024/2025 fiscal year with the launch of a new factory in Aveiro, Portugal. This brand diversifies Catana's product offerings and opens a new revenue stream, though the motorboat market is more competitive.
3. Leadership:
The recent passing of founder and former CEO Oliver Poncin led to Aurélien Poncin, with over two decades of industry experience, taking the helm. Aurélien Poncin’s recent share purchases reflect confidence in the company’s future despite recent stock price declines. Additionally we have recently seen how the management has decided to return value to shareholders with a growing dividend and a new sharebuyback program of up to 10% of the float.
The Poncin family owns 30% of the total shares of the company. However, the Catana brand is not owned by Catana Group; it is owned by the family. Due to this, the company has to pay a royalty of 2.5% of their revenues to the family. The new management of the company plans to change that, which could mean that margins will improve in the future.
4. Sector analysis:
Comparing Catana Group with industry peers highlights its strengths and areas for improvement:
Catana Group leads in gross margins, indicating strong pricing power and operational efficiency. However, its EBIT margin lags behind some competitors, suggesting potential for profitability improvements.
Catana Group differentiates themselves from other competitors because they are a catamaran-only player, the rest of the other business have different lines of boats. Thanks to being so specialized, Catana Group has a slight moat with their brands and models and can have greater pricing power than his competitors. It is possible that the group will face greater competition in their new segment YOT motorboats, even though this segment will face more competition it will help the group to diversify their revenue streams.
5. Financial Performance:
Margins and Costs:
Catana Group has historically achieved industry-leading gross margins (around 60 %), though these have recently been impacted by rising labor and raw material costs and last year fell to around 54%. The company's gross margins are expected to revert to around 60% as cost pressures ease. The EBIT margin recovered to 16% during the last semester, showing potential for further improvement as SG&AE costs relative to revenue have been decreasing over the past seven years.
Revenue Growth:
The company's revenue has grown from $36.42 million to $207.33 million over the past decade, a testament to its strong market position and effective product strategies. The catamaran market is projected to grow at a 6% CAGR over the next decade.
Financial Health:
Catana Group maintains a robust financial position with €47.9 million in financial debt and €82.2 million in equity, underscoring its financial strength and stability.
6. Thesis:
While the catamaran market is growing, concerns exist regarding Catana's ability to sustain the success of the Bali line. The market’s response to the new YOT brand will be pivotal in determining future growth trajectories.
My thesis with these company revolves around three main points:
Revenue growth supported by market growth and market share expansion. The catamaran market is expected to grow at a 6% CAGR for the next decade, Catana group should at least grow at this level. This revenue growth will be leaded by Catana’s main segments Bali and Catana this will be complemented with the extra revenue growth brought by the new YOT brand.
Margin recuperation, I expect margins to come back to near 2021 levels once raw materials costs come back down and recruitment costs are lower, last half year EBIT margin came back to 16% meaning that this margin recuperation is already happening.
Slower CAPEX growth. The company has been investing heavily during the last years in building new factories to improve their current production and building their new factory in Portugal for the YOT segment.
7. Valuation:
To value the company, I have forecasted the company 10 years into the future with these assumptions:
Revenue: I assume that the company will end 2024 with a 10% increase from the previous year, reflecting the strong performance in the first semester. For 2025, I forecast a 6% decline in revenue due to expected weak demand. In 2026, I project a recovery with a 10% growth, followed by a steady 6% annual growth (the same growth as the catamaran market) from 2027 to 2033.
Margin expansion: I expect the company to maintain its current margins over the next decade, gradually increasing their profitability to 57% gross margins and 14.3% operating margin.
Capex: The average Capex spending as a percentage of revenue over the last 10 years has been 6.6%. It is important to note that this spending was not primarily for maintenance Capex; instead, the company needed to invest in new facilities to support its growth. Over the past decade, the company has grown its revenue sixfold. However, since I only project a 71% growth in revenue over the next decade, I will assume that Capex spending will decrease to about 4.5% of revenue.
Taxes: I anticipate that the tax rate will remain stable at 25.5% throughout the next decade.
These assumptions are very conservative and will give us a target price for the stock that is based on reality and that reflects a moderate to bad environment for the company, it is possible that the company performs much better than these assumptions, but for the sake of estimating the value of the company we cannot expect the group to repeat the success of the past.
These are the income and cash flow statements forecasted until the year 2033.
To achieve a valuation, I have built an IRR model and a DCF model.
According to the DCF that I made (assuming a WACC of 12%) the stock has an 66% upside at current prices. This means that we can buy the stock with a big margin of safety.
*New valuation model, for this model we assume a bigger drawdown for 2025 both in revenue and profits but also a faster recovery driven by the newer models and the YOT segment in 2026.
8. Risks:
The main risks we see with this company are three:
Cyclicality: The company operates in a cyclical market and is, therefore, sensitive to economic downturns.
Higher Taxes: The French government could impose higher taxes in the future due to the country's significant debt burden.
Dependency on the Bali Brand: The Bali brand represents almost all of the company's revenues, which poses a significant risk if consumer sentiment towards the brand worsens.
9. Conclusion:
Investing in SA Catana Group presents a compelling opportunity based on its market leadership, strong financials, and innovative product lines. The company's ability to manage costs, sustain the success of the Bali brand, and successfully launch the YOT motorboat line will be critical in maintaining its growth trajectory. The current valuation gives us the opportunity to purchase the company with a deep margin of safety, protecting us from any unexpected events that may affect the company.
Disclaimer:
The information provided in this article is for informational purposes only and should not be considered financial advice. The content does not constitute a recommendation to buy, sell, or hold any security or investment. Always do your own research and consult with a professional financial advisor before making any investment decisions. Investing in stocks involves risk, including the potential loss of principal. Past performance is not indicative of future results.
This stock seems to have lost 90% of its value post the GFC. It still has not hit former highe’s of. Ore than $10/ share. With economy sensitive stock this, timing is everything.