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Catapult chairman Adir Shiffman and co-founder Shaun Holthouse with the company's wearable athlete tracking device.Josh Robenstone
by John Stensholt
A quadrupling share price in a little more than two-and-a-half years would normally be classed a great success for any small cap stock.
But investors in Catapult Group International would in all likelihood be wondering if the company should be worth a lot more and be asking questions about the reasons just why it isn't.
The answer can be traced to New York and a little-known investment company that at one stage last year held about 11 per cent of Catapult stock. It started selling during what turned out to be a nine-month period in which the share price more than halved.
Catapult is a sports technology company that makes and sells GPS tracking devices for professional athletes, which are used by sports scientists and coaches to measure player movement and fatigue during matches and training. The company has also branched into selling software associated with its hardware and its technology has begun to be used on live broadcasts of big sporting events.
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Founded in 2005 by Shaun Holthouse and Igor van de Griendt, who had worked together in the late 1990s in the federal government's Co-operative Research Centres (CRC) program on micro-technology, Catapult listed on the ASX in December 2014 at 55¢ per share.
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One project the pair had worked together on at the CRC, with the Australian Institute of Sport, led to a development of a wearable GPS device. After gaining a government grant, Catapult was established.
Catapult raised $6 million from wealth investors earlier in 2014, including one-time BRW Young Rich List member Stuart Marburg, to buy rival GPS Sports and had by then stitched up deals to supply all of the AFL and many other Australian sports teams with their GPS devices, and had started branching overseas.
The previous year, in an attempt to corporatise the business, Holthouse and van de Griendt had brought on Melbourne serial entrepreneur Adir Shiffman – who has founded six technology companies in his career – as executive chairman.
Strong growth
Shiffman knew the value of publicity and had struck a deal with United States billionaire Mark Cuban, who made his fortune from the $US5.7 billion sale to Broadcast.com to Yahoo in 2000 and owns National Basketball Association team Dallas Mavericks, to take a small stake in Catapult.
The voluble Cuban remains a top 20 shareholder in Catapult today, though his influence has been more profound in the US, where he has helped open doors for Catapult management to strike a series of deals to provide its equipment and software to a string of professional and college sports teams and leagues across the company.
Catapult shares traded sideways for a few months after its late 2014 float before a steady and then quick ascent after it was able to announce of series of prospectus-beating results as its client base of Australian and US sports teams were complemented by European and Asian soccer clubs.
It was in 2015 when New York firm Gilder Gagnon Howe started buying Catapult stock, according to Bloomberg. The firm is understood to have accumulated the stock, buying on sentiment as the share price kept rising, across several different vehicles.
Bloomberg analysis shows by July last year Gilder Gagnon Howe held more than 10 per cent of Catapult's free float worth more than $50 million. (Holthouse and van de Griendt hold about 14 per cent of the company each and Shiffman and his Disruptive Capital private investment firm about 17 per cent.)
Though it was a small amount for an investment house understood to have about $US5-6 billion funds under management, it was obviously a substantial amount of Catapult stock.
All was going well and in July last year Goldman Sachs launched a $100 million capital raising for Catapult, $68 million via a placement and another $32 million in a rights issue. The deal was priced at $3 per share.
The funds raised were to acquire XOS Technologies, a Boston-based sports video analytics company and Irish firm PlayerTek, a manufacturer of GPS tracking devices for amateur athletes and teams.
Share struggles
By last August, Catapult shares had hit a record high $4.05, meaning shareholders who had taken part in the float only 20 months earlier were sitting on a profit of eight times their initial investment.
It was little surprise that some retail investors chose to take profits, and Catapult stock started falling. But it was exacerbated by Gilder Gagnon Howe steadily unwinding its big position in Catapult in the second half of the financial year, perhaps motivated by taking some of its losses for tax purposes.
Some short sellers, though they accounted for less than 5 per cent of Catapult's stock, are also understood to have jumped in.
The company tried everything to reverse the negative sentiment, announcing a string of deals in the first half of the 2017 calendar as esoteric as a contract with the Argentinian La Liga soccer league in March, followed by a league wide agreement with the Welsh Rugby Union and then a video analytics deal with the National Hockey League (NHL) in North America during April.
But Catapult's share price kept falling and by June 7 had hit a low of $1.56. Support from institutional investors helped arrest the slide and Gilder Gagnon Howe has appeared to have stopped selling stock. Bloomberg says it now holds about $15 million worth of shares.
On Friday, Catapult shares closed at $2.33, having risen almost 50 per cent in less than four weeks.
Most small cap analysts covering Catapult have a "buy" recommendation on the stock, with a 12-month price target of $3.00 and a performance boost forecast from two flagged but yet to be announced acquisitions within the next few months.
Bell Potter analyst Chris Savage has assumed the acquisitions, totalling about $11 million and funded by an equity raising of about $14 million for what are said to be athlete management system and software firms, will contribute about $4.6 million in revenue for the 2018 financial year.
Rebounding
That should be the first profitable result for Catapult, which is set to deliver a net loss of about $3.5 million from $64 million revenue for 2017. The company has so far met or exceeded prospectus forecasts.
Ivor Ries from Morgans has a $2.99 target price and in a recent report said: "We believe that the large gap between our valuation and the share price has been brought on by temporary matters and the valuation gap will close over time."
Catapult now claims to have more than 1500 elite sport teams signed up around the world, and given the amount of professional teams across a multitude of sports believes it is just getting started. Existing clients are also sticky, with a low churn rate for what are expensive pieces of equipment.
But there are two areas Catapult believe will be big sources of growth in the future. It wants to ramp up the devices it sells to amateur athletes keen to track their own movements, be it distance or speed, during their weekend football matches and compete for higher data measurements against their friends and teammates (the devices connect to an app that records the information).
Then there is providing analytics for sports broadcasts. Catapult claimed a world first for this year's rugby league State of Origin when its tracking devices worn by the Queensland and NSW players powered the Telstra Tracker statistical service.
The branding deal, worth at least six figures, meant Catapult was monetising its data for the first time. It hopes to soon have deals in place for AFL matches and could also sell the data to other sports leagues or broadcasters around the world.
Sentiment for Catapult is therefore headed in what management believe is the right direction again. But it has received an important lesson for a burgeoning small cap in the technology space about volatility and never knowing quite what could be around the next corner.
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