BRP Inc. (TSX: DOO) is leading company which manufactures powersports vehicles, propulsion systems and boats built. The Group's portfolio includes industry-leading, and distinctive products include Ski-Doo and Lynx snowmobiles, Sea-Doo watercraft, Can-Am on- and off-road vehicles, etc.

Q1FY20 Financial Highlight: For the period ended April 30, 2020, DOO reported revenues of CAD 1,229.8 million, reflecting a decrease of 7.8% on y-o-y basis. The decline in the revenue was primarily due to lower wholesale of Seasonal Products and Marine products due to the negative impact of COVID-19 pandemic, which was partially offset by a favorable foreign exchange rate amounting CAD13 million. Gross profit, during the quarter, stood at CAD 235.1 million, significantly lower than CAD 300.6 million recorded in Q1FY19. The de-growth was primarily attributable to high fixed costs stemming from plant closures due to COVID 19 pandemic, coupled unfavorable pricing and sales programs variation. However, the negatives were partially offset by a favorable product mix within the SSV, PWC and 3WV followed by positive impacts from the foreign exchange rate variation. Total operating expenses soared to CAD 362.4 million against CAD 211.6 million in pcp, due to inclusion of impairment charge amounting to CAD 171.4 million, partially supported by lower selling and marketing expense, research and development expense couple with a slide in general & administrative cost. Net Finance Cost was higher during the quarter at CAD 23 million, as compared to CAD 19.9 million. The company reported a net loss of CAD 226.1 million, as compared to a net profit of CAD 23.8 million in the previous corresponding period.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The Stock of DOO has gained ~13% in the last one year, amidst a volatile broader market scenario due to COVID 19 pandemic, which is impressive. Notably, the stock is closed above its 200-day simple moving average (SMA) of CAD 51.29, indicating a long-term bullish pattern. The Company's facilities were closed for a while and have taken a toll on the Company's operation, primarily within the marine segment. Further to improve the margins through efficient cost structures, the Company has restructured its global marine business and discontinued the production of outboard engines and collaborated with Mercury Marine to support its boat packages. At present, most of the group's facility and dealers have re-opened. The group is witnessing a rebound in demand from the retail segment on account of travel restrictions and vacation at home trend. On the valuation front, the stock is trading at a forward price to earnings multiple of 25.3x, which is higher than the industry (Leisure Product) average of 19.7x. Hence, we recommend a 'Watch' stance on the stock at the closing market price of CAD 55.61 as on June 18, 2020.

DOO  Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.