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Why Dane Capital Excited About Lazydays Holdings Inc (NASDAQ: LAZY)

Lazydays Holdings Inc (NASDAQ: LAZY) is a Florida-based firm that specializes in the sales and service of recreational vehicles, rentals, parts and accessories. In its latest letter to investors, New York-based hedge fund Dane Capital Management said that LAZY is one of the holdings about which the fund is most excited. Dane Capital discussed LAZY along with other companies in the letter. In this article, we’re going to take a look at the fund’s comments about LAZY.

Lazydays was not a contributor to losses for the Fund in the quarter, although it is down in April. It remains one of the holdings about which we’re most excited. The company would like to roll-up the highly fragmented RV dealership industry at prices of 2-4x EBITDA.

We recognize that there is an ongoing debate about where we are in the RV cycle, and a concern that the major players have shipped too much product to dealers. Based on conversations with dealers, many have felt they historically have had inadequate inventory. Our sense is that consumer demand remains robust with an aging population continuing to be a major portion of the buying public, while Gen-Xers and millennials are supplementing demand. If sell-through is healthy, but inventory remains relatively elevated, that seems to us a much larger problem for OEMs than for dealers.

However, our point of view is that most of this doesn’t particularly matter for Lazydays. What they represent is a company that can take significant advantage of the private/public market arbitrage for RV dealerships. We suspect that they will be able to improve margins of any acquired company by receiving better OEM pricing, lowering financing expenses, and bringing their operational expertise. If the industry sees its growth slow, the company may be in an even better position to negotiate prices while acquiring companies that may be distressed sellers.

We also like that this is not a promotional management. In the company’s November 2017 presentation on page 17, they guide to 2017 Adjusted EBITDA of $28-$30 million. On March 21st, buried on page 42 of a lengthy 8-K, they provide EBITDA results for 2017, which were $31.2 million, up 23% y/y from $25.3 million in 2016, on 8.8% y/y revenue growth. They did not issue a press release nor is this information disseminated on their website.

As a newly minted public company, one would think that management would get on the road and in front of investors, yet they have not done so. Management has explained to us that before they start telling their story, they want there to be more of a story. In our view, this includes providing strong 1Q results and making their first acquisition (we suspect with others to follow this year). With that said, the company isn’t lacking for ambition as they are targeting $2 billion in revenue in 5 years. As Craig-Halllum recently wrote in its initiation report, “We see a path to $2 billion in sales, $120 million in EBITDA and a $50 stock in 5 years.” With acquisitions, we believe 2018 EBITDA could be far closer to $40 million than the $32 million Craig-Hallum has forecast.

We believe that Lazydays represents an early innings opportunity and acquisitions will drive shares meaningfully higher. As we’ve seen with other low market cap companies, acquisitions often are a meaningful catalyst to dramatic multiple expansion.

recreational vehicles, RV

Image: Recreational vehicles / Credit: Wikipedia Commons

Lazydays Holdings Inc (NASDAQ: LAZY) has dealerships in Tucson, Arizona, and Loveland, Denver and Longmont, Colorado. Offering a largest selection of RV brands, Lazydays features more than 2,500 new and pre-owned RVs, more than 300 service bays and two on-site campgrounds with over 700 RV campsites. The company has rental fleets in Florida, Arizona and Colorado. It also sells accessories and parts at all of its dealership locations.

Over the past three months, LAZY has dropped more than 6%. Whereas, the share price has fallen more than 14% over the past 12 months. The stock, however, has been performing since June 18 – it closed at $7.27 on June 18 and is now trading at around $9.37. Analysts, polled by FactSet Research, have a consensus average recommendation of ‘BUY’ and a consensus average target price of $15.38 for the stock.

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