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Bombardier Recreational Products (BRP) Stock | NASDAQ: DOOO | TSX: DOO.TO

Vehicles with Brand Power

BRP designs, develops, manufactures, distributes, and markets snowmobiles, all-terrain vehicles, and personal watercraft under the Ski-Doo, Sea-Doo, Can-Am, and Lynx brand names.

It also builds engines under the Rotax brand (after discontinuing the Evinrude outboard engine business in 2020) and offers parts, accessories, and clothing that cater to its core consumers.

In 2018, the company created a new marine group, acquiring boat manufacturers Alumacraft, Triton (which makes Manitou pontoon boats) and Telwater (in Australia). At the end of fiscal 2021, the company marketed its products through a network of more than 3,500 independent dealers and 190 distributors in about 130 countries.

Growth

62

Valuation

96

Quality

58
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Where Are We Now

Updated on: 11/13/2021

Conviction Score

7

BRP is relentlessly zooming past its competition, particularly with its Ski-Doo and Sea-Doo products. The company is remarkably cheap today for the immense brand power and market share the manufacturer has in the snowmobile and watercraft markets. As a matter of fact, who even calls them snowmobiles or watercraft these days?

  • Despite facing supply chain and retail issues, revenues are up over 50% to almost $2 billion in quarterly revenue. The market appears to think this growth is largely a COVID effect, but we’ll take the other side of that bet.

  • The business foresees further momentum going into 2023, which we believe will persist for a much longer time. Consumer interest in powersports is strong and new products will be hitting the market over the next couple of years.

Investment Thesis

  1. Bombardier Recreational Products (BRP) is a leader in manufacturing recreational vehicles with strong brand recognition such as Ski-Doo, Sea-Doo, Can-Am, and Lynx.

  2. Demand for recreational vehicles is hot across all segments. BRP is working on increasing capacity and resolving supply chain issues to fulfill demand.

  3. BRP has been a low-profile compounder over time posting excellent growth across the business over time. We believe their dominance across recreational vehicles is sustainable and can grow over time with leading brand names in each category.

  4. BRP can flex pricing power as they fulfill new product as the used market is trading for well above Manufacturer Suggested Retail Prices (MSRP).

  5. The business can continue to tuck in acquisitions of recreational vehicle manufacturers and explore new electric vehicle lines.

The Basics

Bombardier Recreational Products is a manufacturing company that builds the most common recreational outdoor vehicles. In terms of products, the company manufactures 8 different product lines across 130 different countries.

The product lines include:

PowerSports Year-Round

  • Can-Am

PowerSports Seasonal

  • Ski-Doo

  • Lynx

  • Sea-Doo

PowerSports PA&A (Parts, Accessories and Apparel)

  • Rotax

Marine Group

  • AlumaCraft

  • Manitou

  • Quintrex

BRP Revenue by Product Line (Q2 2022)

Source: BRP Investor Relations

BRP’s History

In 1937, Joseph-Armand Bombardier, a French-Canadian, created a vehicle that could travel through snow. He was able to get a product patent and continued to work on refining his new invention. Five years later, he produced a larger rendition of his product, while also opening up his own company: L’Auto Neige Bombardier Limité. After 17 years, L’Auto Neige Bombardier Limité released the Ski-Dog, the world’s first motorized snow vehicle. The name was intended to replace the typical dog sled, but this name was later changed to Ski-Doo.

As the years went on, Joseph-Armand Bombardier continued to work on his craft and expand his business. He was able to acquire companies such as the Austrian engine builder, Rotax-Werk, along with Nordtrac Oy and Lynx. These acquisitions helped Bombardier expand their product lines, with access to more patents.

Original Rendition of the SnowmobileSource: Wikipedia The first rendition of the Ski-Doo. A motorized vehicle which had two rubber belts, joined in loop, to trek through the snow.

By 2003, L’Auto Neige Bombardier Limité took on the name of Bombardier Recreational Products (BRP) and had a line-up of various outdoor motorized vehicles such as snow-mobiles, ATVs and watercrafts.

In 2013, BRP went public under ticker DOO to pay homage to its first product, the Ski-Doo.

Since the start of the company in 1937, the Ski-Doo has become such a popular product in the market, that it is now known as a common word to describe motorized snow vehicles.

PowerSports Seasonal

skidoo logo.png

Ski-Doo

The Ski-Doo pioneered recreational snowmobiling. It has become so popular that it has become a common noun; a snowmobile is often referred to as a "skidoo". This innovation has led the segment to do so well, with its rise in popularity, being the #1 recreational snowmobile in the market, worldwide.

Despite having a decrease in sales due to the pandemic, Ski-Doos have grown in market share in the snowmobile industry, holding nearly 48%.

Snowmobile Industry by Market Share

Source: Statisa (2017)

lynx logo.png

Lynx

Another part of BRP’s PowerSports Seasonal is the Lynx lineup. These products are also snowmobiles, but smaller and lighter.

In 2020, Lynx achieved 15 straight years of the most sold snowmobiles in Europe. In addition, Lynx products have high demand in Nordic countries, due to their weather and terrain. For countries like Scandinavia and Russia, Lynx is synonymous with snowmobiling as the sport is very popular there. For the last few years, the SnowCross Pro Class championship winners were all Lynx riders.

seadoo logo.png

Sea-Doo

Aside from the snow, BRP also offers Sea-Doos, personal watercrafts for recreational activities.

Due to the pandemic, the demand for Sea-Doos have actually increased. As people look to find socially distanced activities, Sea-Doos are the perfect vehicles of choice. Nearly 52% of sales in 2020 were all generated by new customers, who never owned a Personal Watercraft (PWC). Due to this, we believe the demand will be sustained past the pandemic.

After 17 years, the Sea-Doo is now a global leaders in sales, having a 57% market share in both Canada and the US.

The products have gained a lot of traction from their hardware upgrades. When purchasing a Sea-Doo,  there are many more features than just the PWC. Each Sea-Doo is equipped with an integrated sound system, innovative design, and personal storage facility.

PowerSports PA&A

rotax logo.png

Rotax

Back in 1970, when BRP acquired Rotax, they were an engine manufacturer. BRP has now taken this idea and branched it off into a few different products.

These products are more about building and celebrating a community than they are about the products themselves.

For Rotax’s 100-year anniversary, BRP released two limited edition aircraft engines in 2020. This was also in combination with an Italian espresso machine, that was powered by Rotax. Both came together to celebrate the success of Rotax’s engines, while also marketing the versatility of the product.

Two years ago, Rotax also opened up the Rotax Max Dome. This dome is a go-kart arena in Austria, fully powered by Rotax engines. It was the segment’s first attempt at consumer experience and to date it has performed very well. It not only does it bring in people to have fun, but also exposes them to the power that Rotax has to offer with their engines.

These Rotax go-karts have evolved into actual sporting events, as they hosted the Rotax Max Challenge Grand Finals in Sarno, Italy, a few months before the pandemic hit.

Marine Group

Alumacraft

AlumaCraft are boats that are intended for fishing and other still-water activities. This product line is targeted at all kinds of fishers, whether they are looking for a recreational or professional experience.

As the fishing boat industry continues to grow, statistically at a steady rate of 7% per year, AlumaCraft capitalizes on it accordingly. BRP has strategic partnerships in place with some of the biggest companies, such as Mercury, Yamaha, Suzuki, and Honda, to provide the best quality engines for their boats.

To capitalize on the growing industry even further, AlumaCraft has recently brought forth a new product which is a blend between a Fishing and Ski Crossover boat. This is intended for families with mixed intentions in the water. The product appeals to families who love to fish, but also want the capabilities of a ski-boat.

Manitou

The Manitou product line are pontoons focused on high-performance and long-lasting quality. These boats have been in circulation for the last 35 years, with the same strategic partnerships as AlumaCraft, to receive engines from companies such as Suzuki and Honda.

What makes Manitou stand out is its well-balanced line up and premium quality products. Just recently in July 2020, Manitou released the Aurora LE, a model with multiple seats, a 7” display, and much more, all for the price of an entry model. This type of initiative was meant to encourage more consumers to buy into the pontoon market, by giving them a high-end model for the price of an entry model.

Quintrex

BRP acquired a company called Telwater it back in 2019, to enter the Australian boat market. This brand was then changed to Quintrex to merge into BRP’s product line.

To date, Quintrex is the market leader of aluminum boats in Australia, holding over 60% of market share.

As boating is very popular in Australia, what makes Quintrex stand out is its unique model and famous flared bow. This is the kind of product you can identify from a mile away.

This unique model is not only for show but also practicality. It allows for a sharper point of entry into waves, to make control easier, while also diverting any incoming sprays to occupants.

To combat the pandemic, Quintrex released a forward order program to allow consumers to purchase boats ahead of time, in order to get them when they are in season. This has helped to make customer experience much smoother, while also bringing in increased retail sales.

Going Electric

It is evident how dominate BRP is when it comes to their respective markets. They provide quality and innovative products to cater to any terrain and season. To get one step further in the market, BRP plans to invest $300 million over the next 5 years to create pure electric models of their pre-existing products.

Their first goal is to release an electric Ski-Doo and Sea-Doo, with more products continuing after.

Electric BRP Product LineSource: BRP Investor Relations

The main reason for this investment is not only to reduce their carbon footprint, but also to combat the rising demand for BRP products. The pandemic took a harsh toll on BRP, as their supply chain and logistics were slowed down significantly. A new stream of vehicles allows for an increase in production capacity.

Not to mention, the performance and appeal from customers for electric versions of hit product lines may prove to be strong.


Brand Power

The narrative with BRP is they have an extremely versatile product line. These products have become so popular, they are now synonymous with specific outdoor activities, such as ski-doo and sea-doo. This brand power helps to attract new customers and introduces them into the world of outdoor recreational vehicles. In addition, this popularity carries on to existing customers. Users are inclined to purchase more products because of how common they are.

BRP Annual Revenue ($M) (Q2 2022)

Supply Chain Issues

The biggest concern with BRP right now is their ability to fulfill demand. COVID-19 heavily disrupted their ability to fulfill production.

New production capacity needs to come online to meet the white hot demand which will be significant a capex hit, but this is overall a good problem to have for the business.

Customers are unable to purchase BRP products even if they are purchase-ready.

This is a short-term risk but has long term opportunities. As many consumers have been inside for the last year, yearning to go out, it builds a strong demand for BRP products. Once the pandemic is over, or at least is controllable, people will be more inclined to buy outdoor activity products to make up for the time spent inside.

We are seeing the used market for BRP Ski-doo and Sea-doo products listed at higher than the new price due to the lack of supply. BRP can capitalize on this opportunity by supplying the needs of customers while also using their pricing power to make back any lost sales from the pandemic supply chain disruption.

Bottom Line

BRP is the jack of all trades when it comes to outdoor recreational activities. Their products have something for everyone, regardless of price, experience, terrain, or season.

This is emphasized in their versatile product line with 8 brands, each having its own purpose and value. In addition, each brand continues to have solid growth year over year, while also having a substantial market share.

In terms of looking at future prospects, BRP’s investment plan to transition into a fully electric product line is the defining factor to set them apart from their competition.

BRP will continue to be a powerhouse when it comes to recreational vehicle products. Moving forward, the demand for BRP’s product lineup will be very strong as supply chain issues are ironed out. Long term, we believe BRP to be an underpriced compounder with tremendous brand power in the industry.

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