MarineMax: distributor of pleasure boats and yachts with 54.3% growth potential

Why do we like Bridge Investment Group Holdings Inc?

Reason 1. Maintaining inorganic growth through M&A deals

The market in which MarineMax operates is large, with sales from its five company-owned brands currently accounting for 19% of market potential.

Demonstrating these statistics, management stresses that MarineMax has room to grow and therefore expand its share. The recreational boat and yacht market is highly fragmented, so M&A deals are an effective way to sustain growth. MarineMax managers have successfully pursued this strategy. Between April 2019 and October 2022, the company made 12 acquisitions, which are shown in the infographic below. In December, the company announced another deal.

MarineMax began expanding its bay business in October, closing the acquisition of IGY Marinas, which expanded its global network of bays by 23 sites in North and South America, the Caribbean and Europe. It is worth noting that the bays acquired are located in the most popular destinations for yachting and sport fishing. This destination will provide year-round maintenance and repair services for both conventional and luxury yachts. Then, in early December, it was announced that it was already taking over Midcoast Marine Group, a full-service seaport construction company. This acquisition will further expand MarineMax's service portfolio and may contribute to the vertical integration of the company's business processes.

M&A activity not only helps support the company's inorganic growth, but also helps diversify its revenue streams. Between 2015 and 2022, MarineMax was able to increase the share of its high-margin business from 15.8% to 19.5%. This result was achieved mainly by reducing the share of the used boat sales business and increasing the service business. However, new boat and yacht sales still remain the company's key business with a 73.2% share.

MarineMax's key advantage among companies targeting inorganic growth is efficient financial management: MarineMax has been able to maintain a healthy balance sheet and financial strength since 2021: net debt is in the negative range at a fairly aggressive pace of acquisitions.

In addition, MarineMax announced the creation of a new business, New Wave Innovations, which will invest in and develop technology products and services. The new division will include Boatyard, acquired in March 2020 (recognised in October 2021 as the leading company in terms of innovation in the marine industry) and Boatzon (a definitive agreement to acquire the remaining 75% stake, until then not owned by MarineMax, was concluded on 7 December). Initially, this business will require some investment and therefore pose some risks, but if successful, it will bring the company significant profits and open up new avenues for development.

Reason 2. Market potential

The main risk remains the deterioration of the macroeconomic environment and the emergence of a recession. However, MarineMax management has a successful track record of getting through stressful situations. The closest example is the economic downturn during Covid-19. As can be seen from the chart below, the company even better in 2020 than it did in 2019.

Financial indicators

The company's results for the last 12 months:

TTM revenue: up from $2.06bn to $2.31bn

TTM operating profit: up from $209.5m to $265.2m

in terms of operating margins, up from 10.2% to 11.5% due to the increased presence of high-margin businesses in the product mix

TTM net profit: up from $155m to $198m

in terms of net margin, up from 7.5% to 8.6%

Operating cash flow: down from $373.9m to $76.6m due to investment in inventory

Free cash flow: down from $347.8m to $18.1m

Based on the results of the most recent reporting period:

Revenue: up from $462.3m to $536.8m

Operating profit: up from $43.7m to $50.9m:

in terms of operating margins - unchanged at 9.5%

Net income: up from $32.8 million to $38.4 million

in terms of net margin - virtually unchanged: up from 7.1% to 7.2%

Operating cash flow: down from $44.3m to $46.4m due to investment in inventory

Free cash flow: down from $36.6m to $61.8m

MarineMax has performed well financially, given that its inorganic growth strategy emphasises growth through acquisitions, which contributes to the company's rapid growth, but carries higher risks. The main risk is a weak balance sheet due to a higher debt load. However, MarineMax has no such problem.

• Cash and cash equivalents: $228.3 million
• Net debt: $48 million

Negative net debt allows the company to feel financially stable and continue to invest to maintain high growth.

Evaluation

One important reason for MarineMax's attractiveness is its valuation by major multiples. In general, recreational boat and yacht companies are currently valued cheaply, although they are showing moderate growth rates. The main reason for this is recession expectations, but if the situation improves companies in this area could show significant growth. Separately, MarineMax Inc. is undervalued relative to its competitors by all measures.

Ratings of other investment houses

The minimum price target set by B. Riley's minimum price target is $35 per stock. Raymond James, in turn, set a target price of $55 per stock. According to the consensus, the fair value of the stock is $44.7 per stock, which implies a 54.32% upside potential.

Key risks

• In the event of a serious recession, even segments of luxury goods may come under pressure due to declining demand.
• A growth-by-acquisition strategy carries the risk of a failed M&A deal, which could have a negative impact on the company's value.