Catapult Group International (CAT) $4.37

UBS initiated coverage on the sports analytics company yesterday, with a buy rating and $5.00 12-month price target, implying ~15% upside from yesterday’s close. We like this business, and while the stock has performed exceptionally well over the past year, moving from $1.50 to $4.50, we can’t help but think UBS is late to the party, although we do see a strong growth pathway ahead for CAT.

As a refresher, CAT offers technology and software solutions to sports teams, providing meaningful data to athletes and coaches regarding tactical decisions and conditioning levels. The NRL is an example with the packs that sit below a player’s neck supplied by Catapult. The space has seen significant investment over the last decade as the importance of data in professional sports becomes critical, with the market expected to grow ~20% a year to over $125bn by 2026. After multiple years of investment and some clear disappointment along the way, Catapult has started to hit its stride.

• There are two aspects to CAT’s growth: 1. Getting more sports teams under contract for wearables & 2. Cross-selling opportunities to sell video to existing and new customers.

UBS make the valid point that the value of sports content and thus team values is increasing exponentially. This supports investment in competitive edge-seeking sports tech products such as those provided by Catapult.  Further underpinning UBS’s bullish call is their expectation that CAT will enter the exclusive ASX Technology Rule of 40 club by FY28. We’ve discussed this previously for other tech stocks (Xero has achieved it at scale), however, it’s effectively a measure that highlights sustainable growth.

While Catapult has demonstrated the ability to grow its top line at a c.20% p.a. level, the other key variable is its Cash EBITDA margins which UBS expect to surpass 20% in FY28, which ticks the rule of 40 box. i.e. maintaining good growth rates while defending margins – achieving this milestone would be highly commendable.

• The UBS analysis is aligned with our thinking towards CAT, and although the stock has had a great run, the move is predicated on strong operational execution into a growing market. We originally bought the stock around $1.14 , though we have added to it since, putting our average price at ~$1.40.