On May 5, 2021, Bluegreen Vacations Holding Corporation (BVH), formerly known as BBX Capital Corporation, completed the acquisition of the 7% publicly-traded ownership stake of Bluegreen Vacations Corporation (BXG) that it did not already own through a statutory short-form merger under Florida law. BXG shareholders received 0.51 shares of BVH’s Class A common shares in the merger. On April 5, the day of the merger announcement, BXG shares rallied 18.8%. BXG is now a wholly-owned subsidiary of BVH.
The merger completed a restructuring of BVH that began with the spin-off of all of its businesses, except for Bluegreen, to BBX Capital, Inc. (BBX). After the spin-off and merger, BVH’s primary asset, as its new name suggests, is now its 100% ownership of BXG.
As a result of the merger, BXG shareholders have gained substantially greater liquidity (since all of BVH’s shares are now publicly-registered vs. only 7% for BXG shares). However, BXG shareholder now face greater leverage risk due to BVH’s $140 million outstanding debt, which includes $75 million of 6% Senior Notes held by BBX and $65 million of junior subordinated debt backing trust preferreds previously issued by BBX Capital Corp.’s real estate businesses.
Barring any future corporate events or transactions, such as mergers and acquisitions, the performance of BVH’s share price over the next year or two will depend entirely on the pace of the recovery in its timeshare and related businesses.
In 2020, BXG’s revenues and net income (attributable to shareholders) fell 32% and 76%, respectively, as the number of guest tours at its resorts fell by 49% and the number of sales transactions fell 45%. The decline in revenues and profits from reduced sales activity was cushioned partially by the income earned by BVH on its timeshare notes receivable.
Prior to the pandemic, BVH averaged about 60,000 guest tours and 10,000 sales transactions per quarter. In the 2020 second quarter, when the pandemic began, guest tours and sales transactions plunged to 6,047 and 841, respectively. They have since rebounded to an average of 36,000 and 6,300 over the past three quarters, roughly 40% below pre-pandemic levels, with no clear uptrend yet established.
Although 21Q1 tours and sales were down sequentially, they declined less vs. 20Q4 than the typical seasonal pattern. This suggests that on a “seasonally-adjusted” annualized basis, 21Q1 sales traffic improved over 20Q4.
The stepped-up pace of vaccinations has accelerated the recovery in travel. Most travel companies expect that the recovery will continue for the rest of the year and well into 2022.
In its 21Q1 earnings press release, Bluegreen’s management said it was encouraged by the improvement in leisure travel and in the timeshare business. The company sold 49,374 vacation packages in the quarter, up 15% from 42,917 in 20Q1. This is an indication that its timeshare sales will show similar growth or better in the near future.
Market conditions are favorable for BVH. The company should benefit from two key trends: the pent-up demand for travel combined with the slow lifting of restrictions on international travel. The recovery in domestic travel should therefore be robust this year. Bluegreen’s resorts, which are mostly in high volume, drive-to vacation destinations should benefit accordingly.
Bluegreen’s near-term sales should also benefit from purchases that were delayed by the pandemic and also those that are pulled forward in the improving economic environment (for example, from people who saved money by spending less on leisure during the pandemic). While the recovery should be strong, the key question, which is difficult to answer at this time, is “how long will it endure?”.
I project that BVH will produce earnings per share of $1.06 in 2021 and $1.46 in 2022. Although the EPS growth rate of 37.7% is high, it is well below the more than doubling of EPS for that period anticipated for BVH’s peers, as reflected in consensus estimates. Assuming that the economic recovery continues in 2022, there may be more upside potential in my 2022 estimate than downside risk.
Some specific factors support my revenue and earnings growth projections for Bluegreen. In March, the company announced that it had restructured its sales and marketing organization, moving its sales headquarters to Knoxville TN from Indianapolis IN. The new headquarters is located near the geographical center of its sales activity and should provide better service to the Smoky Mountains, a key market.
Bluegreen’s regional sales executives have likewise moved from Indianapolis to the regions that they manage: including the South (Orlando), the West (Las Vegas), the East (Myrtle Beach) and the Midwest (Sevierville, TN). The restructuring of its regional sales organizations is intended to make the company more responsive to customers and leverage its existing marketing channels more efficiently to increase vacation package tours, identify and manage sales prospects and ultimately to increase sales. Management cited the revamped sales organization as a key driver of the increase in vacation packages sold to 49,374 in 21Q1 from 42,917 in 20Q1.
As noted, Bluegreen is completing its rollout of kiosks to Cabela’s stores. At the end of 2020, it had 98 kiosks in Bass Pro Shops and Cabela’s and plans to end 2021 with 120. Both Bass Pro Shops and Cabela’s cater to outdoorsmen (and women), a key customer for many of its drive-to vacation spots. At the end of 21Q1, Bass Pro and Cabela’s vacation packages represented 68% of the company’s total vacation packages outstanding. That percentage probably will decline over time as the number of vacation packages sold throughout the country increases.
The Big Cedar Lodge is the centerpiece of the Bluegreen/Big Cedar Vacations joint venture (with Bass Pro Shops) in which Bluegreen owns a 51% equity stake. The Ozark mountains was recently cited by CNBC as the most popular vacation destination in the U.S. during the Memorial Day weekend, which is another sign of Bluegreen’s positive near-term prospects.
At the most recent closing price of $19.11 (on June 21), shares of Bluegreen were trading at 18 times my 2021 EPS estimate of $1.06 and 13 times my 2022 EPS projection of $1.46. That compares with average forward multiples for the four company peer group of 33 for 2021 and 15 for 2022.
Consequently, I have set a 6-12 month target price of $25 on Bluegreen’s stock, which is 17 times my 2022 EPS projection. That would represent a price return of 30% from the current quote. Although the exit multiple at the target price is below the average of the broader market, it still represents above average growth prospects for Bluegreen beyond 2022. A lower exit multiple would be warranted if the recovery shows clearer signs of losing momentum.
If my projections are correct, shareholders should also benefit soon from the reinstatement of BVH’s dividend. My projections anticipate an annual payout of $0.30 per share, beginning in the second half of 2021, which would represent a dividend yield of 1.6% at the current price; but the dividend under these projections could conceivably be higher. Still, the company has emphasized in its SEC filings that it has no current plans to reinstate the dividend.
Although I believe that the upside potential in Bluegreen shares is attractive, it is important to state the obvious: the upside potential does not come without risk. As we have seen clearly in the pandemic, Bluegreen’s businesses – including sales of timeshares, resort operations and collections of notes receivable – are sensitive to general changes in economic activity. Beyond that, the company’s business model may face ongoing challenges, including future potential changes in its relationships with strategic partners and the stepped up efforts in recent years by some timeshare owners to enlist the aid of lawyers in order to cancel their contracts.
At this point, given the faster pace of the economic recovery, the relaxation of pandemic-related restrictions and the associated gains in consumer confidence, it is almost certain that Bluegreen will see a meaningful improvement in its sales and profits for the balance of this year and for 2022 as well. That should result in further gains in its stock price over the next 6-12 months.
June 22, 2021
Stephen P. Percoco
Lark Research
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