Originally published in Swedish on www.vafinans.se on November 23rd:
The camping industry has experienced strong growth for many years and industry organisation SCR Svensk Camping expects 2015 to become the third year in a row with record levels. 2014, the amount of guest nights in Sweden was 15 047 000, which is an increase by more than 1 million nights since 2012. SCR believes that some 80% are domestic tourists but also foreign tourists find their way to Sweden more often, particularly from Norway, Denmark, Germany and the Netherlands.
Not even the rather mixed summer weather this year managed to dampen the campers’ enthusiasm. Big investments were made into Swedish camping grounds over recent years and the industry is known for its high standard, good service and broad offering of activities on the sites. Tourists from Netherlands and Germany are also highly attracted by the Swedish nature. A weakening SEK versus the EUR from 8.40 in 2013 to around 9.3 today has also supported Swedish tourism.
The camping business is very fragmented and there are not many big chains. That’s not only true for Sweden but Europe as a whole. So it is not very surprising that not many camping operators are listed on the stock exchange. German Regenbogen AG and French Homair Vacances have been the exceptions, but the latter was acquired by Carlyle Group in early 2015. We therefore find it particularly exciting that Sweden is the home of one of the industry leaders, Nordic Camping.
Nordic Camping & Resorts owns and runs camping sites and cottages at 14 destinations all over Sweden. The company was founded in 2005 by current CEO Tom Sibirzeff and member of the board Petter Wetterstrand. Biggest owner today is Swedish investment company Traction with almost 26% of the outstanding capital. Nordic Camping is listed on the micro- and small-cap marketplace Aktietorget and has a market cap of around SEK 230m at the time of writing. During the summer season, families with kids are the typical target group, which accounts for the majority of sales. Over the last years, the third quarter accounted for roughly 50% of full-year sales. Nordic Camping has an outspoken strategy to drive the consolidation in the camping business by taking over camping sites with development potential. Between 2010 and 2015 (estimate), the company has increased its sales by 179%. The company targets organic growth of 7-10% per annum and the acquisition of 1-3 new sites. The is ample of room for that, considering the fact that Nordic Camping today has only a low single-digit market share and is still among the top 3 players. The other two are privately owned First Camp and Orsa Grönklitt. The large majority of Swedish camping sites is still family owned or run by municipalities.
Innovations the key to success
2014 Nordic Camping reported sales of SEK 80,2m and an operation profit of SEK 15,4m, which implies a strong EBIT margin of 19%. One of the reasons for the company’s success seems to be its chain concept, including an advanced booking system, loyalty program, and continuous investments to increase the standard and attraction of its camping sites. As an example, during 2015 Nordic Camping inaugurated “Ställplats Stockholm”, Sweden’s most modern camping site for motorhomes where both check-in, check-out and payment is done via a machine. Another innovative approach to business is Nordic Camping’s cooperation with Swedish migration office “Migrationsverket”, which began in 2012 and was recently expanded to 8 out of Nordic Camping’s 14 camping sites. Migrationsverket is in charge of the administration of the asylum seekers and has its own personnel on the sites. The cooperation is very beneficial for Nordic Camping since it evens out the usual seasonality of the camping business. Nordic Camping also cooperates with other players, such as construction companies, in order to secure occupancy during the winter months.
Strong momentum and balance sheet
On November 12th, Nordic Camping reported Q3 2015 net sales of SEK 52,8m, an increase of 10% year-over-year. According to CEO Tom Sibirzeff, weekend camping and the number of foreign tourists increased significantly compared to last year. Management also writes in the report that while weather in July naturally is important, it has far from the importance it used to have, i.e. campers want to camp even when it is raining. The trend is also more and more towards booking in-advance, sometimes even 12 months ahead. In May 2015, Nordic Camping made a directed share issue in order to increase the number of shareholders and to secure capital for further expansion. Since then, no further acquisition has been made but we believe that this is only a matter of time. The balance sheet is strong and at the end of Q3 2015, net debt/equity was at only 14%.
Continuous expansion of Migrationsverket business
In connection with its Q3 report, Nordic Camping also increased its guidance for Q4 sales related to the Migrationsverket cooperation to SEK 10m, compared to the previous guidance of SEK 7m and last year’s SEK 6m. Management also said that it expects the Migrationsverket business to be at least at the same high level in Q1 2016. This would imply an increase of at least SEK 2m y-o-y (25%) compared to Q1 2015. We would not be surprised to see a further expansion of the cooperation with Migrationsverket, given the strong influx of refugees to Sweden. Since September, Nordic Camping has added 2 camping sites to the cooperation framework.
Considering the good fundamentals and the strong track-record, we believe it is reasonable to assume a continued organic growth of around 10% also for 2016. In combination with structural growth of 5% and an increased contribution from the Migrationsverket business compared to 2015, we end up with a 2016 sales estimate of SEK 112m. An EBITDA margin of 26% seems reasonable at this level, which in combination with a somewhat improved financial net would imply a net profit of SEK 16,8m, or SEK 1,77 per share. In combination with the current share price of around SEK 24, the implied PE-ratio for 2016 is 13,6x and EV/EBITDA is at 8,3x. This cannot be considered as anything else but attractive, given the expected profit growth of around 30%.
As closest peer on the Swedish stock market, investors can have a look at SkiStar which also runs a tourist business with distinct seasonal pattern. SkiStar has a comparable profitability to Nordic Camping but growth at a much slower pace. SkiStar’s share is currently trading a 2016 PE-ratio of 18x and EV/EBITDA of 9,8x. Other companies to consider for a relative valuation approach could be the hotel business, but there are several fundamental differences to the camping business, such as a more even year-around occupancy. According to Thomson Reuters, the European hotel industry currently trades at a 2016 PE-ratio of 30x and EV/EBITDA of 10x.
Summary and triggers going forward:
- Stable underlying growth in the camping industry
- Good track-record with high growth, good profitability and strong balance sheet
- More M&A and continued consolidation of the camping industry can be expected
- Management and the Board have significant shareholdings in the company
- Potential for expansion of Migrationsverket cooperation
- Relisting to bigger marketplace sometime in the future
- Attractive valuation, both in absolute and relative terms.
Disclaimer: Nordic Investor owns shares in Nordic Camping. The article is for information purposes only. Always consult a professional before you make any investments.