BRP Inc. (TSX: DOO) manufactures powersports vehicles, boats, and propulsion systems with annual sales of CAD 6.1 billion (FY20) across 120 countries. The company’s diversified portfolio includes Ski-Doo and Lynx snowmobiles, All-terrain vehicles, Sea-Doo watercraft, Savage boats, Evinrude and Rotax marine propulsion systems and many more.

In response to the COVID-19 outbreak, the company today (April 15) announced few other steps in addition to previously announced measures. The group put a freeze on hiring across the globe. The group is planning to layoff some staffs permanently while some employees will be temporary laid off and furloughed. There will be a salary cut of ~10% for most of office employees and Director and VPs will take a cut of 15%. In addition to this CEO has decided to forgo his salary.

Earlier on March 30, the group announced that it is temporarily suspending or slowing its manufacturing operations around the world. Earlier, the company suspended its dividends to preserve financial liquidity. The demand destruction and suspension of dividends didn’t sit well with the investors, which are reflected in its stock price. BRP stock has corrected more than 52% so far this year and looks inexpensive.

Financial highlights: On March 20, BRP reported strong FY20 results. The company’s revenues of CAD 6.05 billion jumped 15.4% y-o-y, reflecting stellar retail performance in North America and higher wholesale sales of year-round products. Powersports retail sales grew 15% in North America in FY20. Gross profit increased by 16.0% y-o-y to CAD 1.45 billion, while gross margin expanded by ten basis points. The y-o-y growth came on the back of higher volumes and pricing, partially offset by increased commodity, production and distribution costs. Normalized EBITDA came in at CAD 804.4 million, up 22.6%, reflecting higher gross profits. Operating expenses increased 8.8% y-o-y to CAD 849.7 million continued product investments. Normalized net income came at CAD 358.4 million, up from CAD 308.6 million, thanks to the higher sales and improved margins. Normalized EPS came in at CAD 3.83, up about 24% y-o-y. Cash flow from operating activities stood at CAD 555.5 million, while cash at the end of the FY20 came in at CAD 42.5 million, down from CAD 100 million.

Financial Highlights (Source: Company Reports)

Stock recommendation: A decline in consumer discretionary spending amid the rapid spread of coronavirus cases has dragged BRP stock down. Meanwhile, an expected increase in unemployment rate and weak macroeconomic outlook is likely to hamper the demand for the group’s product in the near-term. Today, the group has decided to reduce its staff and announced a salary cut for most of its employee. Despite the solid fundamentals, the near-term outlook appears bleak for the group.  Hence, we recommend a “Watch” stance on the BRP stock at the current market price of CAD 26.15, down 7.34% as on April 15, 2020 at 10:12 AM EDT.

DOO One-Year Daily Price Chart (Source: 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.