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Why the Catapult Group International Ltd share price is getting wrecked today

The Catapult Group International Ltd (ASX: CAT) share price has fallen 19% to $1.31 after the company released its half-year results this morning. Group revenue rose 31% to $32.4 million. This was a 14% increase on a pro-forma basis (excluding the benefit of acquisitions).

Wearables revenue continues to grow, with Elite Wearables revenue rising to $14.2 million. Elite annual recurring revenue (ARR) was up 22% to $21 million. Elite Wearables and Elite Video also made a positive contribution to earnings before interest, tax, depreciation and amortisation (EBITDA). ‘Prosumer’ unit sales more than tripled compared to the prior half.

Two new major sports deals were announced in the half, with the UK Rugby Football League (3.5 years), and with Australia’s AFL Women’s league (3 years). Soccer is also shaping up as an important target market in the Prosumer business, with 69% of all Prosumer units in the half sold to soccer teams. With the next generation of Prosumer product hitting the market at the tail end of this year, Catapult thinks it may be able to target as many as 20 million possible Prosumer customers. While that’s obviously a hugely aspirational target, even a small success in percentage terms could translate into significant sales growth.

Catapult generated $7.7 million in cash from operations during the half. While it spent all this on reinvestment in the business, it does show that the underlying business can operate profitably. With $18 million cash in the bank and zero debt, it is unlikely Catapult will have to raise capital or borrow soon. One possibility is that management will look to make further acquisitions, which might still make that necessary.

Company management reaffirmed their guidance for the year, with a target of $76 million to $81 million in revenue, and ‘positive underlying EBITDA’.

At $1.31 per share and with around 172 million shares on issue (excluding options), Catapult has a market capitalisation of around $225 million. With a ‘positive underlying EBITDA’ forecast, the valuation still clearly hinges on how much future growth Catapult can achieve. It can win new League, Elite, and Prosumer customers, cross-sell more products and more data to them, and develop more products. However, there are also significant risks regarding the ongoing integration and investment into its many businesses. Management may also decide they need to acquire more new businesses.

I think Catapult is an interesting proposition, but I’m waiting to see a little more progress before I consider a purchase.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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