Bombardier Recreational Products: Bang or Bust?

What is BRP? Bombardier Recreational Products (TSX: DOO.TO) is a Canadian producer of power sports vehicles and marine products for year-round use with some examples being various snowmobiles, personal watercraft and off road/all terrain vehicles. BRP currently employees ~12600 people who are mainly based in production and marketing within Canada, the United States, Mexico, Finland, Austria and Australia. The company exchanges products in over 120 countries internationally and is sold through an extensive supply network of roughly 3,475 independent distributors in 21 different countries. Their are also approximately 200 distributers that are providing products to an additional 800 sellers of BRP's. Revenue Segments Bombardier Recreational Products main revenue stream comes from power sports vehicles and can be easily recognizable considering this segment of products revenue represented ~92.7% of its total revenue. Of which power sport vehicles represented ~46.1% of sold year-round products, ~31.4% of seasonal products and ~13.2% of parts, accessories and apparel. In regards to a geographical analysis of revenue origin, the United States produced ~54.9% of BRP's revenue following with Canada at ~15.7% and ~29.1% being international. The company believes they are currently at number 2 and 3 positions in the global market for year round vehicles in terms of all-terrain vehicles and side-by-side vehicles(SSV). Main competitors in comparison to BRP include but are not limited to Honda, Kawasaki and Polaris.  Growth/Expansion Capability Regarding company growth plans, BRP's strongest focuses are cost control, strengthening production efficency and developing an optimized network. The company makes sure to recognize changing customer preferences and has the main goal of becoming and maintaining the position of being the number one global leader in recreational sports and marine vehicles. To continue, currently inventory is at an all time low. This may suggest a potential inventory recycle and restock. Also a new facility located in mexico that produces side-by-side vehicles will be completed soon, as a result, SSV capacity should increase by 50% which will produce even better profit margins.  Valuation Looking at BRP from a valuation standpoint, since March 2020, the company shares have recovered ~356% driven primarily by peoples inability to travel as a result of the current pandemic. Profitability has been a resurfacing theme for this organization and this is what shareholders are mainly looking for. At 16.5x forward earnings, shares are being exchanged on the market at reasonable levels for company that has demonstrated its ability to maintain and manage costs during the COVID-19 world health crisis and even managed to expand its margins and cash flow. The company also has a recurring record of repurchasing its shares which should consist of an increase to shareholders value in terms of EPS. If the pandemic maintains its presence longer than expected, then their may be a possible increase in consumers interested in activitys produced by BRP's products since they directly correlate with outdoor/outside activities. In regards to DOO's earnings, an investment research firm spokesperson responded during a Q+A held on March 26, 2021 and was asked to comment on the subject.  "The quarter was solid and the dividend was raised 18%. EPS of $1.82 beat estimates by 7%; sales of $1.81B were slightly above estimates. EBITDA of $313M was 4% better. Growth for the year was very good as was the forecast. It plans a big push into electric products over the next five years. The stock hit an all time high yesterday and is still quite cheap on most metrics." -Investment Analyst Financials Considering recent financials, in response to the pandemic, the company initiated multiple cost reduction initiatives, this included but was not limited to the reduction of the global workforce and other temporary layoffs. For the nine months ended October 31st, 2020, total revenue original at 4.14 billion was down 6.7% in comparison to a year ago. This decrease can be attributed to the temporary suspension of construction/production in the first fiscal half of 2021 due to government measures inacted in response to COVID-19. Normalized EBITDA at $685.9 million was up by 17.7% SUGGESTION: Buy Conclusion To conclude, the company is fundementally strong, especially with its management structure put into consideration. BRP has also managed to produce a gain in cashflow and margins meaning expansion which is a positive. The cyclical risks still remain, so take supply line reliability into consideration when buying.

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MathewHarpe

May 4, 2021

6.60%

Change % Since Posting

113.51

Price When Posted

7.49

Change Since Posting

DOO.TO

BRP Inc.

121.00

1.54
1.29%
Current Price

Bombardier Recreational Products: Bang or Bust?

bullish

What is BRP?

Bombardier Recreational Products (TSX: DOO.TO) is a Canadian producer of power sports vehicles and marine products for year-round use with some examples being various snowmobiles, personal watercraft and off road/all terrain vehicles. BRP currently employees ~12600 people who are mainly based in production and marketing within Canada, the United States, Mexico, Finland, Austria and Australia. The company exchanges products in over 120 countries internationally and is sold through an extensive supply network of roughly 3,475 independent distributors in 21 different countries. Their are also approximately 200 distributers that are providing products to an additional 800 sellers of BRP's.

 

Revenue Segments

Bombardier Recreational Products main revenue stream comes from power sports vehicles and can be easily recognizable considering this segment of products revenue represented ~92.7% of its total revenue. Of which power sport vehicles represented ~46.1% of sold year-round products, ~31.4% of seasonal products and ~13.2% of parts, accessories and apparel. In regards to a geographical analysis of revenue origin, the United States produced ~54.9% of BRP's revenue following with Canada at ~15.7% and ~29.1% being international. The company believes they are currently at number 2 and 3 positions in the global market for year round vehicles in terms of all-terrain vehicles and side-by-side vehicles(SSV). Main competitors in comparison to BRP include but are not limited to Honda, Kawasaki and Polaris. 


Growth/Expansion Capability
Regarding company growth plans, BRP's strongest focuses are cost control, strengthening production efficency and developing an optimized network. The company makes sure to recognize changing customer preferences and has the main goal of becoming and maintaining the position of being the number one global leader in recreational sports and marine vehicles. To continue, currently inventory is at an all time low. This may suggest a potential inventory recycle and restock. Also a new facility located in mexico that produces side-by-side vehicles will be completed soon, as a result, SSV capacity should increase by 50% which will produce even better profit margins. 

 

Valuation
Looking at BRP from a valuation standpoint, since March 2020, the company shares have recovered ~356% driven primarily by peoples inability to travel as a result of the current pandemic. Profitability has been a resurfacing theme for this organization and this is what shareholders are mainly looking for. At 16.5x forward earnings, shares are being exchanged on the market at reasonable levels for company that has demonstrated its ability to maintain and manage costs during the COVID-19 world health crisis and even managed to expand its margins and cash flow. The company also has a recurring record of repurchasing its shares which should consist of an increase to shareholders value in terms of EPS. If the pandemic maintains its presence longer than expected, then their may be a possible increase in consumers interested in activitys produced by BRP's products since they directly correlate with outdoor/outside activities. In regards to DOO's earnings, an investment research firm spokesperson responded during a Q+A held on March 26, 2021 and was asked to comment on the subject. 

 

"The quarter was solid and the dividend was raised 18%. EPS of $1.82 beat estimates by 7%; sales of $1.81B were slightly above estimates. EBITDA of $313M was 4% better. Growth for the year was very good as was the forecast. It plans a big push into electric products over the next five years. The stock hit an all time high yesterday and is still quite cheap on most metrics." -Investment Analyst


Financials
Considering recent financials, in response to the pandemic, the company initiated multiple cost reduction initiatives, this included but was not limited to the reduction of the global workforce and other temporary layoffs. For the nine months ended October 31st, 2020, total revenue original at 4.14 billion was down 6.7% in comparison to a year ago. This decrease can be attributed to the temporary suspension of construction/production in the first fiscal half of 2021 due to government measures inacted in response to COVID-19. Normalized EBITDA at $685.9 million was up by 17.7%

 

SUGGESTION: Buy

 

Conclusion
To conclude, the company is fundementally strong, especially with its management structure put into consideration. BRP has also managed to produce a gain in cashflow and margins meaning expansion which is a positive. The cyclical risks still remain, so take supply line reliability into consideration when buying.

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124.86

Target Price

8/ 10

Confidence

6-12 Months

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