23Q2 net income attributable to BVH was $21.9 million or $1.07 per diluted share compared with 22Q2’s $17.8 million or $0.87. Revenues grew 10.7% to $260.6 million, and costs and expenses rose 9.0% to $226.1 million. SG&A expenses, a key focus of management, declined 0.7%. Compared with my projections, revenues came in 0.8% lower, but costs and expenses were 5.1% lower, with SG&A expenses 12.1% below forecast. BVH’s diluted EPS exceeded my estimate of $0.92 by 50%.
System-wide sales (SWS) of vacation ownership interests (VOIs) were $200.7 million, up 1.1% YOY. SWS of Bluegreen-owned VOIs rose 5.2% to $179.7 million, but fee-based sales fell 24.3% to $21.0 million, continuing the emphasis by the company on selling its own VOIs. Still, YOY growth in SWS has slowed for six straight quarters. The number of VOI sales transactions declined 3.5%, but the average transaction price rose 5.1%. Estimated SG&A expenses per transaction eased 0.4%.
As sales growth has slowed, BVH has stepped up its expansion drive, adding the Branson Cedar Resort in Branson MO and a 15-story hotel in Nashville, TN in 23Q2. VOI inventory is up 15% YTD to $448 million. The Notes Receivable portfolio has risen 12% YTD to $618.6 million, while estimated uncollectible Notes Receivable are up 10% to $29.3 million. Although most of the Notes financing is non-recourse, a rise in defaults could limit BVH’s access to such financing. Even so, non-recourse debt as a percent of total capital is down three percentage points to 68.2% YTD, according to my calculations, and my projections anticipate that it will decline further to 60.0% in 2024, assuming no major new resort acquisitions.
The key question is how long demand for BVH’s VOIs will hold up. The company appears to be pressing ahead unconcerned. Even with the new vacation properties added, it seems that growth in overall sales is stalling out. If the recent decline in the SG&A expense ratio is sustainable, then earnings could conceivably continue to grow until the 23Q2 results are lapped. BVH might be able to squeeze out more costs after that, but the potential savings are probably small. For 2023, I now project revenues of $962.1 million, up 4.6% and diluted EPS of $3.75, up 15.7%. As a guess (and without the benefit of management’s guidance), my forecast for 2024 now assumes a 2.6% decline in revenues and a 4.0% decline in EPS to $3.60. If revenues decline in 2024, it seems likely that BVH’s profit margin will too.
Despite my lower earnings expectations for 2024, BVH’s Class A shares have risen 4.6% since my last report (6/30), outperforming the S&P SmallCap 600’s 1.6% gain and the SmallCap 600 Real Estate sector index’s 2.4% decline. Even so, based upon my earnings forecast, I am raising my price target from $33 to $36, and leaving my performance rating at “3” (Neutral). Since I have raised my earnings estimates for 2023 and 2024, the price target applies a lower forward multiple – 10 vs. 11 previously – to projected 2024 EPS of $3.60. That represents a potential total return of 5.8%, including the stock’s 2.3% dividend yield.
This is a summary of my recent report on Bluegreen Vacations Holding Corp. (BVH), which was originally published on August 22, 2023. To obtain a copy of the full report, please reach out to me using the contact information provided below.
August 22, 2023
Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250
admin@larkresearch.com
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