Description

Camping World – Long - $25/share – share count at YE22E of 82M – market cap of $2B (on YE 82M shares) – YE22E net debt of ~$850M

Camping World is the largest RV dealer with ~high teens share of new unit sales. CWH continues to evolve into a business that is a lot more than “just another seller of cyclical RVs”.

CWH trades at 5.7x my “normalized mid cycle” FCF per share estimate of ~$4.35. Over the next 5-6 years, normalized FCF per share should grow at a ~20% CAGR, and you should get a double in the FCF multiple. I believe CWH represents a great opportunity to arbitrage time horizons and take advantage of the market’s focus on the short term –estimates for CWH may have to come down but the long-term potential of CWH represents a significant undervaluation of the shares. Over the longer term I believe CWH will grow mid cycle FCF per share by at least a mid-teens CAGR through almost any environment.

I believe normalized mid cycle EBITDA is somewhere in the low to mid $600Ms. Which is ~1/3rd below 2021 adj EBITDA of $942M and ~50-60% above 2017 adj EBITDA. The stock was in the $30s in 2017 and is $25 today.

From 2017 to year end 2022 (estimate), I believe CWH will have increased its dealership count by >60%; increased its parts and service business by >50%; significantly increased used market share organically (and inorganically); added highways.com (a full-service Carvana-like online buying operation); added a P2P RV rental marketplace platform; added RVs.com, a third-party marketplace platform for private party used transactions; added an Electric World business, laid the foundation for building a mobile service platform, laid out a goal of internally sourcing 50% of retail products, added a campground booking platform, among several other developments. Additionally, over the last two years, active campers in the US have grown substantially and are approaching 90M households – the RV lifestyle is increasingly penetrating this active camper base, camping and RVing frequency have grown substantially. Covid will likely prove that it has increased the appreciation for the outdoors, camping and RVing will continue to be beneficiaries. Additionally, I haven’t seen a large number of RV dealership newbuilds or announced future builds in recent months or years.

Over the last decade CWH has put up 8% EBITDA margins on average (including the gander fiasco and industry soft spot years in 2018-2019). CWH has also nearly 5Xed its revenue and 9Xed EBITDA over the last decade. Over the next decade I believe CWH’s average EBITDA margins should be 9% and potentially 9.5%. I believe in a slight step up for the following reasons: higher AUVs over the next decade driven by several factors including – a large increase in outdoor participation (and RVing) that has been underway, CWH’s push to double its used RV market share from its current <5% market share, introduction of highways.com and its other tech platforms. CWH will also increase its leverage over vendors, it will continue to grow its very high margin Good Sam and its high margin parts and service businesses. CWH’s tech platforms – RVs.com, P2P rental platform, and mobile service network will also be higher margin fee income streams. Manufacturers and dealers have evolved their relationship into working very closely to match supply with demand. I believe manufacturers won’t flood dealer lots like they did in 2018-2019, which led to discounting and the RV industry slitting its own throat. (CWH took a significant earnings hit in 2019 from its failed Gander acquisition which makes that year look abnormally bad).  Dealers and floor plan lenders will seek to avoid this as well given we are only 3 years removed from the last crisis.

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I believe normalized mid cycle revenue for CWH is ~$6.5B – as the business will exist at YE 2022 (including the 10-15+ dealerships CWH will add this year). CWH did $6.9B in revenue in 2021 and street estimates for 2023 revenue are $7.3-7.4B. In 2022, I believe CWH will continue to sell 2 RVs per avg day, with 355 days is 710 units/yr for avg location. With 195 avg locations – ASPs of $37-38k – that’s $5.3B (slightly up from 2021). You then have $600M+ F&I revenue (100% margins), products services and other of $1.2B+ (38% GMs and going higher), and $250M in Good Sam (50% EBITDA margins).

$6.5B x 9.25% = $600M in EBITDA which is what the mid cycle earnings power of the business should look like as it exists in 2022 (but 2022 actual earnings should be much higher). Another way to look at normalized EBITDA is the following: pre covid CWH had SG&A as a percent of gross profit at 68.5%. CWH gross profit in 2022 was $2.45B, one could assume new RV revenue is normalized 15% lower and used is 10% lower, meaning ~$660M less revenue and ~$158M less GP plus another $55M less GP from F&I, then assume new GMs come down 5.5% and used comes down 4%, walking GP down another $200M. The parts/service and Good Sam businesses will still grow. This means GP goes from $2.45B to $2.04B and at a normalized 68.5% SG&A to GP ratio (I think they could run at a lower ratio going forward btw) would equate to $642M in normalized EBITDA. But I assume ~$600M in mid cycle EBITDA for the business.

Over the next 5 years CWH should acquire (or greenfield) $40M per year in EBITDA – adding $200M total. CWH will grow its parts and service EBITDA at least ~$15M per year (HSD CAGR) – or $75M. CWH will grow its Good Sam business by 8% per year and add $65M in EBITDA. CWH organic SS dealership growth contribution – including industry growth + highways.com – by just $10M per year or $50M total. Additionally, CWH should add $100M in EBITDA earnings power from its push to significantly grow its used market share (although CWH believes they could add $300M+ from used). CWH is also rolling out RVs.com, a P2P rental platform, and a mobile service platform – I believe these should be generating a combined $40-50M in incremental EBITDA in ~5/6 years.

This all amounts to $1.14B in normalized EBITDA in 5/6 years. In 5/6 years CWH will have maintenance capex of $90M and interest expense of $80-90M. For pretax FCF of $970M and fully taxed FCF of ~$745M.

I also believe that from 2022-2027 CWH will generate $1.3-1.8B in FCF net of capex, or distributable FCF (I even include a recession year). While I would like CWH to buyback more, I believe CWH will buyback an average of 5M shares per year over this time frame, retiring 30M shares at an average stock price of $50 (double the current price), this would cost $1.5B.

CWH could buy 6M in 2022, then 6M, 6M, 4M, 4M, 4M.

This would leave CWH with 57M shares.

CWH 2027 normalized FCF per share should be $745M / 57M, or $13.07 per share.

CWH should then trade at 12-13x FCF per share, or $157 - $170 per share in 5 years.

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CWH segments – Dealership business, Parts and service, Good Sam, and tech platforms.

Dealership business

·         CWH will buy or build 18-20 new dealerships per year doing $2-2.5M in PF EBITDA.

·         CWH has a goal of doubling its used business for which it has 4.5% share of used transactions, used units come with attractive margins and the cyclicality in used is not very high. There are an estimated 800k+ private party used RV transactions each and every year, if CWH can penetrate just 5% of this market it would mean an additional 40k transactions that including the front and back end should add $5-6k in EBITDA contribution per used sale, for $240M/yr in EBITDA contribution. I only give credit for an additional $100M over 5 years from used. CWH’s advantages here are its RVvaluator algorithm, access to plenty of cash, and traffic and marketing muscle to drive turns. CWH has always turned used well, in 2021, 2020, 2019, and 2018 - CWH turned used 4x, 5.2x, 4.8x, and 5.1x. Meaning over the next few years they should be able to procure enough used inventory annually to step up avg used inventory levels by and additional $250M and turn that 3-3.5x, adding $875M in revenue organically at 18% contribution margin or $158M in incremental EBITDA (I use just $100M in my estimates). CWH will have availability on its floor plan financing facility to fund the working capital needed for used.

·         Highways.com – full-service soup to nuts online buying and delivery – which should provide further organic growth above the industry growth rate. CWH will have an efficient distribution model and allow customers to chose from thousands of RVs – which is neat bc there are so many different models and specs of RVs.

Parts and Service Business

·         CWH is rapidly adding service bays as the supply/demand outlook and ROIC are very favorable, the industry doesn’t have nearly enough capacity. CWH should see strong contribution in parts and service growth as they can procure technicians and as new bays are built for full priced repair work instead of pre delivery inspection work which is lower margin.

·         CWH had 2,600 bays as of Q3. Over the next 5 years CWH will be able to grow its bay count 6% per year and its SSS 6.5% (driven by productivity and pricing). This would equate to 3,320 service bays doing $390K in annual revenue or $1.3B, CWH should obtain 18% EBITDA margins in this business, or $235M in parts and service EBITDA – I haircut this by $50M in my 2026/2027 estimates.

Good Sam

·         This is a dominant business as the leader in RV insurance, providing RV insurance, roadside, and warranty. Good Sam is also a club that has 2.2M members, it costs $29/yr and provides a number of benefits to the RV enthusiast including discounts at campgrounds, on fuel, and RV accessories and services at Camping World – it is effective in keeping RVers in the CWH ecosystem. This is high margin annuity like cash flow and CWH’s top priority is to grow this business double digits. CWH should hit 8% annual revenue growth by rolling it out at its new dealerships, making it a key companywide focus, growth in the outdoor industry, and potentially taking some price. Management has a goal of $250M in Good Sam EBITDA in 5 years versus $130M today, I use just $185M in 5 years.

Tech platforms - P2P Platform and RVs.com

·         P2P RV rental platform Outdoorsy has raised capital at a $1.8B valuation with only $100M in revenue. The coming RVs.com will have a peer in RVtrader whose parentco was acquired in 2021 for 26.5x EBITDA.

·         RVs.com - Designed to be the leading/trusted platform for used private party transactions, 800k+ per year at $28k avg the TAM is $22.4B. RVs.com will help CWH procure used units.

·         CWH should be a winner in P2P RV rentals given their massive database of millions of RVers and outdoor enthusiasts, ability to run it at 80% lower fees because it drives other parts of their business, and CWH has marketing muscle. CWH should get to #2-3 market share and eventually raise fees which will be very high margin. It will also drive the Good Sam business which is very high margin. This could also drive leads to the dealership business (and parts/services). It would also allow RV owners to generate income and could even flip their monthly RV payments to effectively scratch if they rent the RV just 4-5 times per year. It would also allow RV owners to upgrade more frequently. The ancillary income streams such as insurance will be very profitable for CWH. With Outdoorsy being worth ~$1.8B today, CWH’s P2P platform should be quite valuable in 5 years.

Overall, I see CWH evolving into a much more valuable business over the course of the next 5 years.

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Management – CWH’s Chairman and CEO is Marcus Lemonis. Lemonis owns 37M shares and he claims 97% of his net worth is in CWH.

Management positives – Lemonis is one of the most aligned CEOs of any public company. Lemonis has become a billionaire pretty much exclusively from rolling up RV dealerships – this is evidence that the guy knows how to make money and create value for equity holders. CWH’s senior leadership team led by Matt Wagner and Brent Moody are excellent, competitors say so as well. This team has learned a lot over the last 1-2 decades and have a great strategy for the next decade, they have a lot of skin in the game as well. Also, Lemonis’ reputation is at stake given the poor stock performance since its IPO, can one be hailed as “The Profit” if their own stock only goes down?

Management negatives – Lemonis has been and basically still is a reality TV persona, he is promotional, and I believe distracted at times. He has overpromised and missed several times since becoming a public company, most of this is due to the failed 363 acquisition of Gander. Lemonis does have a lot to prove. But his senior leadership team that pull the strings and run the business are very good.

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Buybacks – I believe Lemonis, the board, and top shareholders (Abrams Capital and Crestview Partners) understand the power of large buybacks over the long term. The market hates this stock (nearly half of the float is short). I view it as a huge positive that CWH should retire large amounts of stock over the next 5-6 years at cheap multiples of FCF. Autozone grew EBITDA at an ~8% CAGR from 2000 to date, and the stock is up ~90-fold… as shares out are down ~87%.

Feb 2022 -  Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO 

 “Well, look, it is already always our plan to grow earnings, but more importantly, to grow the earnings per share. It is always important for us to do that. And so we know in order to grow the earnings per share, we have to buy shares back at a very aggressive level. And as long as we believe there's a dislocation between where we, as a management team, believes the value of the company is and where the market thinks the value of the company is, we are going to astutely use our capital to the extent that we're permitted by the Board to buy it back. And when we do that, we'll go back for more and we'll go back for more and we'll go back for more.

 I want to be clear about that, that we are going to be very disciplined and very sort of almost in our DNA that share buybacks are part of our DNA as we move forward as a company, and it's accelerated even more when we don't buy off on the market's value. But I would expect it to exist in the long term.”

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Cyclicality

I believe Camping World is far less cyclical than feared and in ~5 years CWH will evolve into a business where it is not as penalized for having a couple weak years every 10 years. Given the addition of less cyclical income streams such as Good Sam, parts and service, tech platforms, used, F&I (100% gross margin), the ability to capitalize on downturns, and ~2/3rds of SG&A being variable.

~90% of the RVs CWH sells are towable which are quite accessible and affordable to most Americans and ~75% of vehicles on the road can tow an RV. Common RV financing arrangements are for 12-15 years and monthly payments around $200-250/month.

CWH has a $1.4B 2028 Term Loan with essentially no financial covenants. CWH will end 2022 with ~$800-850M in net debt (incl buybacks and dividends), CWH also has $250M in RE value. If and when a downturn comes (historically they last 12-18 months – and the industry has always come back and made a higher peak) I believe CWH will earn somewhere between $200-300M (~2/3rds of SG&A is highly variable – sales commissions, wages and bonuses) and become more valuable as a result of the downturn. I believe this because CWH will almost always have $300-500M+ in unencumbered cash ready and available to make acquisitions and share repurchases in and coming out of a downturn at 1-1.5x normalized EBITDA (they paid even less for M&A in the last downcycle, around 2009-2010 they bought $1B in revenue for just the floor plan outstanding amount – ie they bought $1B in revenue at ~the value of inventory). Meaning CWH should tack on ~$100-175M in normalized EBITDA and be able to buy back stock during and coming out of downcycles. There are 2,200 RV dealerships and in theory ~1k are potential CWH targets. M&A multiples for independent dealers are typically 3.5x normalized EBITDA (confirmed by several M&A bankers) and CWH makes them more profitable through several avenues (Good Sam, adding parts and service bays, buying power over vendors, better training esp in F&I, better data analytics and marketing) – they typically pay ~2x on PF EBITDA. CWH currently has ~195 dealerships and could add another 100 in the coming years (including used supercenters).

Oil and rates risks

I believe CWH’s core customer is the RVer that drives ~3,000-4,000 miles per year – so high gas prices do not crush them. When gas was $4 in ~2012-2013 new RV sales in the US grew mid-single digits, when fuel prices doubled from 2003-2005 RV sales also grew meaningfully. Consumer confidence is certainly a relevant indicator. If gas does go to and stays in the mid to high $4s it is a headwind and could shave a handful of points off of demand for RVs. Looking at the glass half full – it would allow CWH to use their significant unencumbered cash to make more acquisitions and do so at more favorable prices, and one could also say the cure for high oil prices is high oil prices. Given the rate of change move in oil it likely has startled some consumers, but if gasoline can settle at or slightly below $4 over the medium/longer term I believe this boogeyman headwind will largely go away. Being stuck with having to pay another $25-75 in gas for a trip is not the breaking point. People historically have taken shorter trips or one less trip per year. If we are headed toward a world of multiyear $130+ oil then O&G stocks would likely be a good hedge.

The core CWH customer is the ~$20-45k RV which is financed over ~15 years, each point increase in rates adds about 6% to the monthly payments on future RV purchases that are financed, so rates adding another $15-30 per month doesn’t change much. Mortgage rates are going up but the median homeowner has tacked on an addition $50k in home equity over the last year which bodes well. Recent private dealer checks show continued RV sales strength – industry wide RV sales are likely to be down MSD (potentially HSD) in 2022 versus a very strong 2021. Studies show RVing is cheaper than other vacation alternatives.

Inflation has led to RV manufacturers increasing ASPs on new units, I believe CWH is well on its way to being more of a dominate force in used RV sales which compares very favorably as inflation pushes up new ASPs.

I don’t see real tech disruption risk here 1) because CWH would be leading it 2) there are so many different models and specs of RV plus buying a house on wheels is an important purchase you want to kick the tires and buy from a trustworthy/best source.

CWH Bear Case

The bear case would consist of multi-year ~$5+ avg fuel prices, very poor consumer confidence, and significant industry overbuilding. I would then adjust normalized mid cycle EBITDA for the YE22 business to $500M in EBITDA. Using conservative figures for the next 5 years I would then say CWH only acquires $150M in EBITDA, its used strategy doesn’t work well and only adds $50M, no organic growth (off of the reset normalized EBITDA), Good Sam only adds $40M, parts and service only adds $60M, and the CWH tech platforms only add $25M in EBITDA. This would amount to $825M in EBITDA and ~$535M in after tax FCF with 68M in pf shares, or $7.87 in cash EPS, at 11x this would be $86.52 plus we’d get several dollars in dividends. My bear case would be a 3.5x for CWH in 5 years.

CWH competitive advantages – Good Sam, scale leading to leverage over vendors and CWH being the lowest cost provider, best in class senior leadership team, war chest of cash with no covenants or maturities until 2028 – and lower CoC, data analytics to know their floor plan and that of competitors as well as their extensive customer database, RVvaluator algorithm for used trading, national marketing, and the majority of competitors are less sophisticated (~65% of the industry consists of mom and pop dealers).

RV industry

New RV unit sales have grown at a ~3-4% CAGR for the last couple of decades.

Covid has introduced an additional ~15M+ new active camping households. Covid has led to a rediscovery of the great outdoors and has led to more frequent camping trips. Covid along with the exponential growth of P2P RV rentals has led to a younger and more diverse demographic discovering RVing. At the same time, a huge amount of baby boomers are entering retirement. I believe employees not having to be tethered to the office 5 days a week will allow for more camping trips and more work from anywhere. Although, the industry needs to see more campground builds (which are coming) because most are very backed up but there are alternatives such as harvest hosts.

The market is significantly underestimating all of the above.

RVers typically upgrade every 3.5 years.

Evidence points to most people enjoying and staying in the RV lifestyle once they are exposed. The number of US households that own an RV has not declined but for one year over the last 4 decades.

Each RV downturn in sales is always followed by a new higher peak which is >20% higher than the last peak.

Conclusion

The RV market will likely cool off and reset in 2022/2023. Over the next handful of years we don’t need the RV market to grow in order for CWH to be a triple digit stock. CWH trades at 5.7x my “normalized mid cycle” FCF per share. Over the next 5-6 years, normalized FCF per share should grow at a ~20% CAGR, and you should get a double in the FCF multiple. Over the longer term I believe CWH will grow mid cycle FCF per share by at least a mid-teens CAGR through almost any environment.

Smart Sponsors

Abrams Capital owns 5M CWH shares, they have a great long term track record.

B. Riley recently submitted a $25/share non-binding proposal to acquire Lazydays, I believe this price represents ~5-5.5x EV/normalized EBITDA and RILY is/was seemingly opportunistically trying to steal it – the LAZY board rejected for significantly undervaluing the company. I believe CWH is worth a much higher multiple given its relative advantages/mix/opportunities.

Crestview Partners is a PE shop that owns just over 10M shares, they have been in the stock for a decade and have done well and still have not elected to sell recently - signaling they believe significant outsized returns are still to come.

Buffett’s BRK bought RV manufacturer Forest River in 2005 – I think this demonstrates that if you have a long-term view you can do very well investing in this industry even with its cyclicality. Versus most major RV manufacturers - CWH has less cyclicality, higher returns on capital, and a greater growth runway. Norbert Lou of Punch Card Capital has 20% of his US portfolio in RV manufacturer Winnebago as well.

Auto dealership rollups Lithia and Asbury are up 15x and 10x since 2012 respectively from rolling up auto dealerships and buying back stock.

CWH owner-operator CEO Lemonis started with a few million bucks in ~2003 and has become a billionaire from rolling up RV dealerships. Lemonis is a fiery competitor and has assembled a high-quality Sr. leadership team.

Risks

The consumer gets murdered for an extended period of time

Overbuilding (yet to see it)

CWH doesn’t stick to the gameplan 

Catalyst

buyback shares until there are none left