MarineMax ($HZO): Subjected to Vendors Negotiation Power

MarineMax ($HZO), is the classical example of how the power of suppliers can make it a not so good business. At the end, it is reasonable to think that customers find much more value in the design and quality of the boats/yachts than in where or from whom they are bought. The management of MarineMax argues that they can offer more related services than smaller or local retailers, which it has a point; but still during the reading of their reports, we can see several references to the importance of agreements with the manufacurers.

Apart from the risk of losing the right to sell boats/yachts from one of the most popular manufacturers, the management explicity acknowledges as a risk the discontinuation of the rebates giving by those suppliers. The biggest item in the current assets of the balance sheet, is by much difference the inventory (around 61% at the end of 2019). This can be due to the way the process is agreed, allowing manufacturers to push this investment to the retailers and pressing them as much as they can in order to get financial advantage from it. 

In these cases, we cannot rely on the increase of future margins by the retailers, as these ones will be offset by the manufacturers pressure (either by pushing required investments to their retailers or by increasing their prices).

We don’t see either big entry barrriers to new competitors. It seems the biggest one would be to get the agreement with the suppliers. So again, we see big dependence on them.

Of course, additional services and local marketing can help. But we are not talking about impulse sales, so the buyers will be very motivated for searching local retailers with better prices or models.

Specially, the high inventory levels, made Marinemax to get a ROIC of around 10%. Making it to trade at a multiple below 8 of LTM TEV/EBIT.

The growth in the past has been mainly due to acquisitions of smaller and local retailers. And the plan looks to be the same for the future. The only big difference we have seen in the last month, is among other purchases, the acquisition of small boats manufacturers. Could this be the inflection point and a change in the strategy through a vertical integration. We will have to keep in eye in this possibility in the next months/years.

 

Remittance Companies

Screening in the search of new stock picks I came accross a firm that provides remittance services (sending of money mainly from US to Latin American), International Money Express ($IMXI). The numbers looked good, the reports ok, … basically through some independent agents or own stores around several US states they offer their services to inmigrants. At the same time, they have already established relationships with banks and other receipt nodes at the offered destinations. Making it possible to transfer, through their own technology the money in only some minutes. A fee is then charged to the sender, from which a part goes to the agent, another to the receipt node, and finally a part to International Money Express. All looked good, but still in my mind resonated the question, why they don’t just user Paypal, a digital cryptocurrency or something similar? It looks quite complicated. In one of the disclosed risks, in one of the reports sent to the SEC, they acknowledge that eventually a digital platform might disrupt this process, but they don’t expect it in the short term. And that is what finally switch on my bulb. Why, if I plan to invest for the long-term will I enter in a company which acknowledges a big disruption, but at least not in the short-term. I’ve realized then, that there are many other companies waiting in the pipeline, and that investing in a company (even if it is very cheap) with this risk in the back, wouldn’t let me sleep well. So I definitely decided to let it go, and discard any of the other ones offering this same services (which also sit in the cheap ones, but that now I understand they are there for a good reason).