The Limestone Boat Company is a buy, says Beacon

The Limestone Boat Co (The Limestone Boat Co Stock Quote, Chart, News, Analysts, Financials TSXV:BOAT) is looking to make waves with a new acquisition and partnership, according to Doug Cooper, analyst with Beacon Securities. Cooper delivered an update to clients on Wednesday where he reaffirmed his “Buy” rating and $0.75 per share target, which at press time represented a projected one-year return of 114 per cent.

A heritage brand in designing quality and durable boats, The Limestone Boat Co closed its qualifying transaction in early March and began trading on the TSX junior board on March 4. The company completed a $3.23-million private placement in January, which it followed up with a private placement convertible debenture closing on Tuesday for about $14.1 million.

That financing was in part put towards the acquisition of Ebbtide Holdings, a manufacturer of boats under the Aquasport and Boca Bay brands in White Bluff, Tennessee. First announced in late March and closed on Tuesday, the acquisition includes US$3.75 million in cash and US$2.5 million of Limestone shares issued at $0.33 per share for 9.3 million shares.

Calling it a keystone transaction, the Ebbtide purchase will allow Limestone to expand production to meet the growing market demand, according to the company. Limestone said adding Ebbtide will give it over 50 independent dealer locations servicing the Great Lakes, the Northeastern United States and the US Gulf Coast.

“The combination of heritage brands Limestone and Aquasport provides continuity in reputation for safety, performance and quality, coupled with the addition of the Boca Bay and Ebbtide brands further diversifying the Company’s offering,” Limestone CEO Scott Hanson said in a March 29 press release.

“Our team members in Collingwood, Ontario will be responsible for directing product development and North American sales, marketing, distribution and finance, allowing the team in Tennessee to focus primarily on production and regional sales. By securing expanded manufacturing capacity and a broad dealer network, we are well positioned to become a significant force in the North American marine industry,” Hanson said.

Commenting on the Ebbtide buy, Cooper called it a vertical integration strategy that will de-risk Limestone’s production and manufacturing strategy, which the analyst stressed as an important consideration in a market where inventories are currently at historically low levels.

“It will also diversify the company’s product offering across the value spectrum (Aquasport and Boca Bay), expand its distribution breadth to include the important Southeast US/Gulf Coast region and offer excellent cross-selling opportunities,” Cooper wrote.

Cooper also noted Limestone’s announcement on Wednesday of a partnership with Montreal-based Vision Marine Technologies to produce electric outboard motors for Limestone and Aquasport boats. Vision Marine, which has invested $3.4 million as part of Limestone’s just-closed convertible debenture and owns about six per cent of BOAT, developed its flagship outboard powertrain E-Motion, the first fully electric outboard powertrain system combining a battery pack, inverter and high-efficiency motor.

Cooper wrote, “This is a very strategic partnership as VMAR has developed a fully electric outboard powertrain system. As with cars, the future of boats likely lies in electric propulsion. Through VMAR, we believe Limestone could have a first mover advantage.”

As for milestones on the partnership, Cooper pointed to the delivery of boats with electric systems for sea trials by August of this year (with optimal design to allow for up to four hours of run-time at 25-30 mph) followed, if successful, by Limestone taking its new offering to fall boast shows with sales possible by the end of 2021/early 2022. Cooper said those sales would be accretive to his model.

Forecasting on the electric motor, Cooper said initial demand would likely come from customers with environmental concerns, the economics are likely good for all, as electric may prove to be cheaper: a Limestone tank costs about $800 to fill while an electric charging would be about $50, making for a break-even on a $60,000 purchase of about 75 tanks of gas.

“While clearly a little early to determine, pricing would likely be ~+$60,000 versus a comparable combustible engine. Nevertheless, indications from BOAT’s dealer network are that if it can reach such specifications, they would not be able to keep inventory as there would be such strong demand,” Cooper said.

“We have been bullish Limestone given the unprecedented demand for boats, its position in the market, expanding distribution and its vertical integration strategy. However, this partnership with VMAR has the potential to be game changing,” he wrote.

As or BOAT’s forecast, Cooper is calling for fiscal 2021 and fiscal 2022 system sales of $32.4 million and $72.5 million, respectively, and 2021 and 2022 adjusted EBITDA of $2.8 million and $12.4 million, respectively.

With a current market capitalization of about $34 million, The Limestone Boat Company’s share price is currently down about seven per cent since its debut in March.