Catapult Accelerates Sales Growth

This story features CATAPULT GROUP INTERNATIONAL LIMITED. For more info SHARE ANALYSIS: CAT

-Cash flow surprises in March qtr
-Revenue from subscriptions up strongly
-Acquisition yet to fulfill expectations
 

By Eva Brocklehurst

Product sales are accelerating for Catapult Group ((CAT)). The company has signed up the US National Women's Soccer League, the company's first overseas based, league-wide contract.

Product awareness is also growing substantially, with first sales to two US high schools in the March quarter, and brokers confidently expect the company's product to broaden beyond the elite sports market. Catapult sold a record 2,085 units in the quarter, up 118% on the prior quarter.

Bell Potter observes operating cash flow was surprisingly positive, given it is a seasonally weak quarter for cash receipts, but cautions that this is a timing issue which is likely to remain volatile. The only negative, in the broker's opinion, was that average revenue per user (ARPU) looks to have declined slightly.

The broker had assumed ARPU would increase as the price increases and the Australian dollar weakens but this has not been the case. The reason, Bell Potter suspects, is from a higher weighting to lower value product sales. This is not expected to be an ongoing issue but the broker does lower its ARPU growth assumptions by 6.0% to 3.0%.

Historically, the June quarter has accounted for 36% of sales and, if this is confirmed, the company looks set to beat guidance for FY16. Bell Potter increases its terminal growth rate forecasts to 5.0% from 4.0%.

The net result is an increase to valuation with the target raised to $2.75 from $2.45. A Speculative Hold rating is retained as, while continuing to believe in the long-term fortunes of the stock, with a market cap that now exceeds $300m the market appears to have priced in a lot of the growth.

Morgans, on the other hand, maintains an Add rating and $2.89 target, considering the sales momentum is exceptionally strong. If the company continues to capture more than two thirds of new elite sports monitoring and analytics contracts, the broker believes there would be considerable upside potential to valuation.

Anualised revenue from subscriptions was $10.5m at the end of the quarter, up 75%, and reflects a continuing shift in the mix towards subscription rather than capital unit sales. For Morgans this is a key metric as it represents sustainable long-term cash flow.

This broker also believes the company is on track to beat guidance for 8,000 unit sales in FY16 and total contract value of $24.5m. Still, because of the shift in mix towards subscriptions and the timing issues, the full revenue and profit impact of stronger unit sales may not be realised until FY17.

March quarter sales were exceptionally strong, versus previous March quarters, and Morgans asserts this is evidence that a decision late last year, to forego early profits and invest in building a larger and more diverse sales team, has paid off.

The main catalysts going forward, Morgans envisages, are new supply contracts, a realisation of the strong unit growth that is expected in the fourth quarter and news on the progress towards data sales monetisation. Countering this, the broker notes, are risks of a loss of a league-wide deal to a rival, slower-than-expected unit sales and unusual behaviour from a competitor.

Catapult Group has over 60 employees across Australia, Europe and the US. It provides elite sporting organisations and athletes with real-time data as well as analytics to monitor and measure performance in either a team or individual environment. Some of the company's elite sports clients include Real Madrid, the Dallas Cowboys and all the Australian AFL, NRL and Super Rugby teams.

The company has identified the US, Europe and Australia as its geographic areas of expansion. Brokers note it operates in a number of currencies and fluctuations in exchange rates can affect profitability. Any appreciation in the Australian dollar against the US dollar or euro could have an adverse impact.

Catapult's technology is protected by patents and licencing but these measures may not be enough to protect its competitive advantage, Bell Potter observes. Just prior to its IPO Catapult acquired an Australian competitor, GPSports, which the broker observes is yet to fulfill expectations.
 

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