Compass Point lowered its rating on Callaway Golf from “Neutral” to “Sell” due to a lower valuation put on Topgolf, an investment for Callaway’s, than expected.
Compass Point also reduced its price target on Callway from $14.50 to $13.50.
In a note, analyst Casey Alexander said an 8K filing on December 26 showed that Callaway had invested an additional $20 million into Topgolf, which does business as TopGolf Entertainment Group. Fidelity also invested in Topgolf in the funding round.
Alexander noted that Callaway said the company’s 14 percent stake in Topgolf is now valued at $290 million, which equates to $2.99 per share. The revised valuation is “far below” the $4.50 value that Compass Point had been estimating for Topgolf. Alexander added, “We also believe our valuation for Topgolf was the lowest published value. We believe the $2.99 post-money valuation will be a significant disappointment to current ELY shareholders.”
Alexander said the firm does “not question the value of continuing an investment in Topgolf.” Topgolf has expanded from 20 to 40 stores over the last two years with 14 scheduled to open. The analyst also noted the healthy payback Callaway received from the sale of about 4 percent of Topgolf to Providence Equity Partners in the first quarter of 2016. Alexander wrote, “By any reckoning, Topgolf has been a profitable investment and a successful business concept.”
Photo courtesy Topgolf
