Why caravans could be your next great investment
Key statistics: ASX: ATL
Closing share price 29.08.17: $1.445 52-week high: $1.520 52-week low: $- Most recent dividend: 2c Annual dividend yield: - Franking: 100%
Having just spent four months towing a caravan around the eastern states, there was one thing I discovered. I wasn't the only one.
Caravan parks from Wilsons Promontory to the Daintree rainforest are crowded and often booked out.
And if you think you would like to get away to a secluded campsite, forget it. If you can get there by vehicle, it will be on WikiCamps and plenty of others will be there too.
Camping is all the rage but modern campers prefer not to rough it. They take all their creature comforts with them, usually in the form of a recreational vehicle (RV).
In addition to the grey nomads and a few families, campgrounds are filled with foreign tourists and a few domestic ones who have rented camper vans and motorhomes. One company that has been capitalising on this trend for over 30 years, and recently listed on the ASX, is Apollo Tourism and Leisure.
Apollo is a vertically integrated operator in the RV industry. It manufactures and imports RVs, sells them direct to retail through a network of dealers and operates a large RV rental business.
It also sells ex-rental RVs to wholesale and retail customers. Until they listed in November last year, it was a family-run business with humble beginnings in suburban Brisbane.
The family retained 65% of the shares after listing, and two sons of the original founders are the CEO and CFO.
The rental fleet spans North America as well as Australia and New Zealand with about 4150 vehicles operating out of 26 locations.
Apollo builds its own motorhomes and campervans under the Talvor brand and has an exclusive licence to manufacture Winnebagos in Australia and NZ.
It is also exclusive distributor of the Adria range of caravans and motorhomes imported from Europe.
Anyone who lurks around caravan parks will be very familiar with these brands. At the top of the vertical, Apollo sells new and ex-rental RVs through a network of dealerships. It has recently been buying well-established dealerships to add to its retail footprint.
Another interesting business is a 25% stake in Camplify, which is attempting to be the Airbnb of RVs.
Anyone who owns an RV knows that in reality it spends most of its life in the driveway, taking up space and costing money, and relatively little time exploring the great outdoors.
Camplify seeks to help owners gain some income by renting out its dormant RVs. In effect it is another competitor to the RV rental fleet operators, so it is interesting to see that Apollo have chosen to join them rather than fight them.
Of course, as with most aspects of tourism, the market is very competitive.
There are numerous RV manufacturers and retailers and there is also a plethora of RV rental fleet operators. Apollo has the advantage of strong brands and a long and successful history but the competition will always keep margins in check.
At first glance it appears to have a lot of debt on its balance sheet but on closer inspection most of the debt is secured against the inventory, RVs for sale or the rental fleet. There is almost no unsecured debt.
While it is early days in the life of Apollo as a listed company, it seems to be off to a good start. The full-year results released last week revealed revenue and profits had beaten both prospectus and analyst forecasts.
Despite listing only 10 months ago, the shares have risen very strongly from $1 to $1.445.
At this level they couldn't be classified as cheap but with a 2018 forward PE ratio of 14.5 and a dividend yield of 3.4% nor are they expensive. The outlook for inbound tourism in the markets in which Apollo operates is very positive.
Also, forecast demand for RV sales is strong with an increasing number of retirees who are cashed up, healthy and ready to hit the road.
These organic factors, along with Apollo's appetite for more strategic acquisitions, suggests the growth profile is robust.
Data accurate as at August 29, 2017
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