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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Supply Chain Dislocation Hinders Throughput at Narrow-Moat BRP; Shares Modestly Overvalued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We don’t plan to materially alter our fair value estimate for narrow-moat BRP of CAD 84 ($67) after incorporating robust first-quarter performance into our model. Sales in the period rose 47%, with year-round and seasonal segments rising 44%, parts, accessories, and clothing (PAC) higher by 91%, and marine up 11%. Moreover, this volume drove operating margin to 18%, a high water mark for BRP. Cost leverage was largely captured via adjusted gross margin improvement, which expanded 1,090 basis points to 30%, thanks to the persistence of lower promotional spend, better cost absorption (versus plant closures last year), and mix (higher PAC and no outboard engine sales). For reference, in the five first quarters prior to COVID-19, gross margin averaged around 23% at BRP.

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Company Profile

Business Description

BRP designs, develops, manufactures, distributes, and markets snowmobiles, all-terrain vehicles, and personal watercraft under the Ski-Doo, Sea-Doo, Can-Am, and Lynx brand names. It also builds engines under the Rotax brand (after discontinuing the Evinrude outboard engine business in 2020) and offers parts, accessories, and clothing that cater to its core consumers. In 2018, BRP created a marine group, acquiring boat manufacturers Alumacraft, Triton (which makes Manitou pontoon boats) and Telwater (in Australia). At the end of fiscal 2021, the company marketed its products through a network of more than 3,500 independent dealers and 190 distributors in about 130 countries.

Contact
726 Saint-Joseph Street
Valcourt, QC, J0E 2L0, Canada
T +1 450 532-6154
Sector Consumer Cyclical
Industry Recreational Vehicles
Most Recent Earnings Apr 30, 2021
Fiscal Year End Jan 31, 2022
Stock Type
Employees 14,500

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