Performance Sports Group Ltd. (NYSE:PSG) is expected to report next quarter results. We are looking for sales of $141.7 million, EBITDA of $15.6 million, and EPS of $0.10 versus consensus of $135.5 million, $15.5 million, and $0.11 correspondingly. We have adj. our estimates mainly due to changes to our assumptions associated to seasonality, timing of product launches, and synergies. Our second half of 2015 Year estimates has been moderately reduced. We continue to see earnings risk in first half of 20F16 led mainly by a weaker CAD and anticipated softer European end-market demand (i.e., Russia).
From a valuation view, PSG is presently trading at 12.8 times our F15 estimate Enterprise value/EBITDA, or an unwarranted (in our opinion) 1 times premium to its multi-sport peer group, in spite of its higher leverage (4.0 times versus 2.2 times net debt to EBITDA 2015 estimate), lower FCF yield (2.8% versus 5.7% ’15 estimate), modestly lower efficiency metrics, and similar growth profile.
Given expectations for currency headwinds (C$), limited balance sheet flexibility, and high relative valuation, investors may wish to take profit at these levels. Longer term, we believe persevered M&A (new and existing verticals) and possible upside to PSG’s supply chain cost-take out target of $30 million led mostly by lower input (nylon & resin) costs.
Acquisition and Integration, high debt levels, shifting consumer preferences are major risks to be considered while trading. We maintain “Sector Perform” rating and “High” risk assessment.