Apollo’s EBIT up 72% in maiden result

Morgans Financial Limited

Apollo reported revenue of A$92.8m up 18% on pcp (+1.5% vs Morgans) delivering EBIT of A$17.2m up 72% on the pcp (+8.8% vs Morgans). Top line growth was supported by strong performance in Australia and New Zealand and better than expected margins in USA.

Group EBIT margins increased 580bps to 18.5% while pro forma NPAT was 131% higher at A$9.7m equating to 78% of full year prospectus guidance.

ATL declared a 0.5cps dividend which was in line with our expectation. ATL also reconfirmed its FY17 prospectus forecasts for NPAT of A$12.4m.

Strong growth across all divisions

In Australia, revenue was up 24% to A$44.7m with EBIT of A$6.1m (+11% on pcp) implying a 13.6% margin (vs 15.3% on pcp). Australia's margin decline was due to a change in mix (sales vs rentals) as well as change in client acquisition costs.

ATL noted that forward bookings are in line with expectations and the Easter period continues to strengthen. In New Zealand (NZ) revenue was up 29% to A$13.4m contributing EBIT of A$2.4m which was materially higher than the pcp at A$1.2m.

Margins expanded from 11.8% to 17.7% in 1H17. NZ is experiencing strong rental demand with yield and utilisation ahead of forecasts YTD.

In the USA, revenue was up 3% to A$31.9m with EBIT up 61% to A$7.0m which implies a margin of 22.1% vs 14.1% on pcp. Management has said that the 2016 summer peak was in line with prospectus forecasts.

New sales the key to a step change in growth

It was a natural progression for ATL to enter the new vehicle sales market in Australia given its long history of supplying ex rental fleet into the second hand market. Over the last three years ATL has won the right to manufacture and distribute the brand synonymous with caravanning, Winnebago, as well as import the well-known European brand Adria.

With Australia's aging population and growing savings expected to continue, we believe the current market growth rates of c4.5% will continue.

With c23k RVs manufactured domestically pa and ATL having less than 1% of the market, we believe the group should be able to increase its market share in a growing market.

We believe ATL's sales will be further supported by the acquisition of Sydney RV (announced early Feb) which sold c900 new used caravans and motorhomes in FY16.

Add maintained

We maintain our Add rating and price target (clients only) using a combination of PE and EV/EBIT methodologies. Post ATL's prospectus period, on our forecasts the group's PE declines to 12.2x FY18F and offers 3.9% yield on what we consider reasonably achievable assumptions.

Key risks include: increased competition, seasonality, tourism related shocks, P2P movement, FX, movement in fuel price and deterioration of general macro

Contributes by Alexandra Clarke, Analyst, Industrials. Original blog here: (VIEW LINK)


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