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Black Diamond Inc: Not Sparkling Yet
Posted by: Mark Lin (IP Logged)
Date: November 20, 2012 10:35AM
Black Diamond Inc (BDE) is a global leader in the design, manufacturing and marketing of innovative active outdoor performance products for climbing, mountaineering, backpacking, skiing, cycling and other outdoor recreation activities for a wide range of year-round use. BDE's principal brands, Black Diamond, Gregory, POC and Pieps, are iconic in the active outdoor industry and linked intrinsically with the modern history of these sports. Its products are sold by leading specialty retailers in the U.S. and 50 countries around the world. In May 2010, Clarus Corporation acquired Black Diamond Equipment Ltd. and was renamed Black Diamond Inc. in January 2011.
On July 2, 2012, BDE completed the acquisition of POC Sweden AB, a leading supplier of protection gear for gravity sports athletes, for $44.9 million, comprised of 460,000 shares of BDE common stock and $40.6 million cash. Shares issued are subject to a two-year lock-up.
BDE is currently trading at 39.1x trailing 12 months P/E and 28.3x EV/EBITDA. It has achieved a trailing 12 months ROE of 2.4% and a five-year average ROE of 8.9%.
Financial And Business Risks
BDE is moderately geared with a gross debt-to-equity ratio of 17.3% and a net gearing of 11.5%. On Feb. 22 2012, BDE closed a public offering for 8.9 million shares at $7.50 for net proceeds of $63.4 million.
Customer concentration risk is not significant. REI and Kabushiki Kaisha A&F accounted for approximately 15% and 6% of BDE's sales in 2011.
BDE's current EBITDA margins of 9.4% are below that of peers. BDE plans to expand operating margins by shifting its sales mix to higher margin products and bringing several of its distributors in-house. Higher-margin products include protection gear for gravity sports athletes by POC Sweden AB and technical outdoor apparel.
BDE manufactures approximately 30% to 35% of its proprietary products in-house and source the remaining 65% to 70% of its manufactured products from a global network of strategic partners with more than 10 years of working relationships.
Weather conditions may affect BDE's operating performance. Milder temperatures could prevent the formation of ice, which may negatively affect demand for BDE's ice climbing products, and mild winter weather with less snowfall may negatively impact sales of BDE's winter sports products.
Business Quality and Capital Allocation
BDE is a leading global designer and manufacturer of active outdoor performance products with double-digit top-line growth at Black Diamond Equipment since 1990. It represents a unique pure play in the outdoor space and its business and brands are benefiting from the convergence of function and fashion in the outdoor and athletic apparel, footwear, and equipment space.
The outdoor sector shows good growth prospects with U.S. outdoor participation growing 56% since 2006.
BDE possesses industry leading production innovation and development capabilities with a portfolio of over 70 patents and patents pending worldwide and over 200 new product introductions since 1989. Some of the products introduced by BDE in recent years include a new line of freeride ski boots; trekking poles with FlickLock technology and Z-Poles that can fold to one-third their size; the AvaLung backpack; and brighter, more compact and lighter-weight headlamps.
BDE is highly diversified across brands, products, geographies and channels. It operates a multi-brand platform with Black Diamond and Gregory branded products spanning 27 single product categories, with no single product category accounting for more than 15% of annual sales. More than 50% of BDE's sales are generated outside the U.S. in more than 50 countries. BDE also has a highly diversified customer base and sells products in over 4,700 retail locations focused on specialty retail stores.
BDE does not pay a dividend.
BDE's current EBITDA margins pale in comparison with peers, reflecting that there is more work to be done.
The author does not have a position in any of the stocks mentioned.