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Marine Products Corp.’s sterndrive sales impress B. Riley

Marine Products Corp., parent company of Chaparral and Robalo, is a well-run company that has been “one of the few stars of this sterndrive market that’s been under so much pressure.”

That’s according to B. Riley & Co. analyst Jimmy Baker, who issued the firm’s first report about the company as part of its newly expanded coverage of the marine industry. B. Riley has added Marine Products and West Marine to the list of marine companies it analyzes.

“It’s such a well-run company,” Baker told Trade Only Today. “It’s been one of the few stars of this sterndrive market that’s been under so much pressure. They’ve been able to offset that pressure with share gains. I’ve been particularly impressed with how consistently profitable they’ve been despite having no aluminum exposure.”

B. Riley set the builder’s buy rating at “neutral,” but only because company insiders control 70 percent of the company’s shares. “Insiders of the company control so much of the share standing, there’s just not much out there to trade.”

The Chaparral brand has been gaining market share since 2010, making it “the best-selling sterndrive brand in the United States in the critical 18- to 35-foot category” with a 14 percent share, Baker wrote in his analysis, noting that Chaparral’s portfolio tops out at 42 feet.

“Impressively, Marine Products has been profitable in nine out of the last 10 years, managing the recreational marine depression as well or better than any OEM we track,” Baker wrote. “The company has a debt-free balance sheet, with considerable dry powder that could eventually be used to amass additional brands in complementary segments. In the near term the company is expanding into the jetboat market, which will leave it with a significant presence in fiberglass jet, outboard and sterndrive categories.”

The builder has “remained disciplined,” Baker wrote, having passed on “many potential acquisition targets that ended up in the hands of struggling competitors or financial buyers. Still, we believe it remains interested in expanding into complementary categories — particularly aluminum and/or larger fiberglass categories.”

“I would say the company is an appropriate blend between being conservative and innovative,” Baker told Trade Only. “Yes, they’ve been very disciplined with capital allocation, and they haven’t been an aggressive acquirer. But they have been very innovative going after the entry-level buyer with the H20 line, having recognized the need to bring down the price in the boat-buying market.”

The company’s imminent expansion into the jetboat market will give it a “significant presence” in the fiberglass jet, outboard and sterndrive categories, Baker wrote.

The company’s shares trade at “a considerable premium to peers,” Baker wrote. Although that is warranted, given its operating track record and outperformance, analysts believe a theoretical private market value also may be supporting the shares.

“With shares trading only modestly below our price target, we are initiating coverage of Marine Products Corp. shares at neutral, despite our highly favorable view of the company and its competitive position,” Baker wrote.

Shares closed at $9.27 Tuesday, with a 52-week range of $5.26 to $9.89. Baker gave the shares a $9 target.


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