Canadian powersports manufacturer BRP’s (DOO.TO)(DOOO) plan to sell its marine and marine parts divisions should increase near-term profitability, an RBC Capital Markets analyst says.
The Quebec-based company said Thursday it is putting the marine divisions up for sale in order to focus on its power sports business.
“After careful consideration and given the current dynamics of both the marine and powersports industries, we have decided to double down on our core powersports activities and to sell our marine businesses,” José Boisjoli, BRP’s president and CEO said in a press release.
Last month, the company cut its full-year earnings guidance for the second quarter in a row, with Boisjoli citing “an increasingly challenging economic environment.” Analysts responded by cutting price targets for BRP in September.
In a note to investors, RBC analyst Sabahat Khan had a positive take on the planned sale, noting a challenging market for boats and writing that the planned sale “will likely result in a benefit to profitability over the near term for BRP.”
RBC rates BRP an “outperform”, with a price target of $99. BRP’s shares hovered around $77.50 early Thursday, down around 1.25 per cent from Wednesday’s close.
The businesses up for sale do not include BRP’s Sea-Doo personal watercraft, Switch pontoons and jet propulsion system businesses, BRP says. The company adds that the sale process should be completed by the end of April next year.
Khan writes that the marine industry “is currently facing material headwinds” due to excess inventory and lower demand owing to interest rates that remain restrictive. Boats, additionally, “are very high price point products, in the U.S. $100k+ range,” Khan notes, with prices “dramatically” higher than they were before the COVID-19 pandemic.
The sale “will allow BRP to focus on solidifying its already strong positioning within the global powersports industry,” the analyst says, noting that BRP has top market share in various powersports categories, but remains “a relatively small player in the global marine market.” The company’s guidance for its marine division includes a 40 to 50 per cent drop in sales in the 2025 fiscal year, Khan adds, with gross profit for the division negative since the fourth quarter of 2023.
RBC believes the marine division will cut BRP’s earnings per share by around $1.50 this fiscal year.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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