Bluegreen Vacations Holding Corp. (BVH) 23Q1 Update

23Q1 net income attributable to shareholders was $11.5 million or $0.71 per diluted share, compared with 22Q1’s $16.0 million or $0.76 per share.  Revenues grew 12.3% to $219.1 million, but operating expenses rose 17.4% to $199.2 million, with double-digit increases in all expense categories.  Interest expense more than doubled, due to additional debt taken on in the recent share tender and higher interest rates.  The decline in EPS occurred despite a 22.5% decline in average shares outstanding.

System-wide sales (SWS) of vacation ownership interests (VOIs) were $166.9 million, up 10.2%.  Although the double-digit increase is impressive, the growth in SWS has slowed steadily over the past five quarters.  Fee-based sales, a component of SWS, fell another 50%, with a comparable drop in commission revenues, as BVH focuses on selling its own inventory.  Net financing revenue rose 12.7%, less than the 26.6% increase in the notes receivable portfolio.  Uncollectible VOI notes receivable jumped 52.3% YOY.

As with the broader economy, there is still momentum in Bluegreen sales, but other factors, including cost inflation and rising interest rates, are weighing more on the company’s performance.  In this environment, Bluegreen is focused on improving its marketing efficiency, as measured for example by its average cost to acquire a customer and the average revenue generated per guest at its vacation resorts.

The company has embarked on an expansion drive, with recent acquisitions of resorts in Vail (CO), Panama City Beach (FL) and Branson (MO) (by its Bluegreen/Big Cedars joint venture with Bass Pro Shops).  It has also begun an expansion at its Mills Springs Lodge resort and is adding three new presidential suites at its Mountain Loft resort, both located in the Smokey Mountains of Tennessee.

These acquisitions and expansions will enhance Bluegreen’s franchise value, but they will be a drag on its performance in 2023 and probably in 2024.  Along with the expected slowdown in the economy, which seems sure to slow sales of vacation ownership interests and raise defaults on VOI Notes Receivable, I expect that Bluegreen’s diluted EPS will be flat in 2023 at $3.24 and decline in 2024 to $3.00.

Year-to-date, BVH’s stock has delivered a 34.8% total return, outpacing the S&P SmallCap 600’s 1.6% return.  Most of the outperformance was achieved early in the year, following the company’s large share tender.  The stock suffered a steep decline in March during the short-lived regional bank crisis; but it has since bounced back, achieving a new high for the year in early June. If my forecast is correct, it will be difficult for the stock to sustain this degree of outperformance going forward in the face of declining earnings in 2024.  My price target of $33 is based upon an assumed one-year forward multiple of 11.0 applied to projected 2024 EPS of $3.00.  With the stock currently trading right around that level, I am maintaining my performance rating of “3” (Neutral) on BVH’s stock.

This is a summary of my recent update report on Bluegreen Vacations Holding Corp. (BVH). To obtain a copy of the full report, please reach out to me directly using the contact information provided below.

June 27, 2023

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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