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Narrow-Moat BRP’s Top Line Constrained by Supply Chain, but Underlying Demand Remains Robust

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

We don’t plan any material change to our CAD 111 fair value estimate for narrow-moat BRP after incorporating third-quarter results and updated full-year guidance in our model. While third-quarter sales (CAD 1.59 billion, down 5% versus a year ago) fell short of our outlook, this was attributable to component shortages, rather than weak demand, an issue that has been pervasive across recreational product OEMs in recent periods. Indeed, dealers have struggled to facilitate sales due to low inventory levels (down 44% over last year), and we expect little improvement in dealer inventory availability in the near term as retail sales return to growth in the fourth quarter (with units ahead largely presold). Quantitatively, dealers remain underinventoried by a full quarter level of shipments. On the profit side, the normalized net income level of 8% of sales contracted 360 basis points year over year and was about 50 basis points lower than fiscal 2020 due to lower absorption and higher commodity and logistics expenses.

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Company Profile

Business Description

BRP designs, develops, manufactures, distributes, and markets snowmobiles, all-terrain vehicles, and personal watercraft under the Ski-Doo, Sea-Doo, Can-Am, and Lynx brand names. It also builds engines under the Rotax brand (after discontinuing the Evinrude outboard engine business in 2020) and offers clothing, parts, and accessories that cater to its core consumers. In 2018, BRP created a marine group, acquiring boat manufacturers Alumacraft, Triton (which makes Manitou pontoon boats), and Telwater (in Australia). At the end of fiscal 2021, the company marketed its products through a network of more than 3,500 independent dealers and 190 distributors in about 130 countries.

726 Saint-Joseph Street
Valcourt, QC, J0E 2L0, Canada
T +1 450 532-6154
Sector Consumer Cyclical
Industry Recreational Vehicles
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 31, 2022
Stock Type
Employees 14,500