By Jeff Sanford
Toronto, Ontario -- January 23, 2017 -- Tuesday Ticker keeps you updated on all the news from players large and small in the collision repair industry and the larger auto claims economy. Make sure to check back every Tuesday for the latest news.
This week we look into Axalta’s potential as a “takeover target,” earnings reports from PPG, Uni-Select’s FinishMaster brand continues to grow and much, much more!
- Stock markets have been trading “sideways” since mid-December. The S&P 500 and the Dow Jones have both remained within a tight range over that time as investors wonder where markets go from here. Some investors are confident that Donald Trump's presidency will be good for the stock market.
A report out this week from Swiss bank UBS surveyed its richest US investors (those with at more than $1 million in investable assets) and finds they are, “... more optimistic than they’ve been in the eight years since the financial crisis.” The investors are confident that Trump’s plans to, “... cut taxes, increase fiscal spending and reduce regulation,” will boost US economic growth. On the other hand, some worry disappointing earnings in the months ahead could see markets take a dive. A report in the financial press notes that, “... one-month call options tied to ... a popular gauge of stock-market volatility, has spiked in the past week.” According to the report, “The increased demand suggests that some investors are bracing for a sell-off following the inauguration of President-elect Donald Trump.”
- Axalta was the subject last week of a stock analysis on popular investment website Seeking Alpha. According to the analyst, Axalta stock could be a good buy. The paint maker may do well as a result of Trump's stated ambition to invest in the rebuilding of American infrastructure.
The company should also benefit from continued demand for transportation vehicle coatings as the, “… automotive coatings market worldwide is projected to exceed $16b by 2021, a 7 percent increase from 2016 sales.” The report goes on to note that, “Axalta is the youngest public company swimming among the legacy paint companies.” The company was founded in 2013 in a spin-off to The Carlyle Group from DuPont Performance Coatings. Institutions and hedge funds are heavily invested in Axalta, as, “Those funds may be anticipating a takeover of the company at some point.”
According to the report over 200 institutional investors have a stake in Axalta. One big owner is Warren Buffett, who paid $560 million to The Carlyle Group in 2015 for 20 million shares of Axalta. Buffett's holding company, Berkshire Hathaway, now owns 9.7 percent of Axalta. According to the analyst, “AXTA's greatest potential might be as a takeover target perhaps by suitors like Sherwin-Williams (whom Buffett admires) and PPG. Either can easily fold Axalta products and operations into their operations. Akzo Nobel was suspected of being a serious contender for Axalta when The Carlyle Group considered the sale of its shares. Akzo is rumored to be looking for acquisitions to build revenues, and Axalta fits nicely into Akzo's portfolio of companies.”
- Axalta also announced it is building a new “Customer Experience Center” in North Carolina. European supplier Symach will install, “Two custom-designed SprayTron paint booths with pneumatic side glass doors. Each SprayTron is equipped with a Robodry curing robot and can be operated as a standard booth, as well as be used as a production line.” As well, there will be two prep/primer bays, each with its own FlyDry robot for curing of primer; two sanding bays, each with its own vacuum sanding system, and two complete CarMover rail systems.
- PPG reported its year end financials last Thursday. The company announced it generated $877 million in earnings 2016, or $3.28 per share. Revenue was reported as $14.75 billion. For the last quarter of the year the company announced earnings of $344 million, or a profit of $1.30 per share. The results exceeded expectations of Wall Street analysts, which had predicted earnings of $1.18 per share. Revenue for the quarter was $3.5 billion.
- PPG also announced it purchased Chinese automotive refinish coatings maker, Futian Xinshi. Futian had sales of roughly $15 million last year and is a privately-owned company based in the Guangdong province of China. The entity distributes its products in China through a network of over 200 distributors. According to a report, “Under the agreement, PPG Industries will buy Futian’s trademarks, product technology and customer list. The buyout will further boost PPG Industries’ foothold in the growing Chinese automotive refinish coatings market.” PPG has made it a corporate goal to grow its business through strategic acquisitions. The company recently wrapped up the acquisition of Romanian paint maker, Deutek.
- A portfolio manager with Avenue Investment Management recently appeared on the Business News Network. In a live interview he named AutoCanada as one of this top three stock picks for 2017. According to the manager the fact that the company's “price to earnings ratio” (a common metric used to compare different stocks) is just “12 times earnings” (lower than the market average on that score) is a good sign. He also mentioned the dividend of 2 percent paid on the stock and the fact the company enjoys free cash flow of $50 million per year as two other reasons to be positive about the stock.
- AkzoNobel announced last week it was busy repurchasing 164,000 of its own shares between January 16, 2017 and January 20, 2017. The company would spend about $14.33 million CAD doing so. The company announced the repurchase program in December. Buying back shares reduces the share count outstanding, thereby increasing “earnings per share.”
- AkzoNobel also announced it has officially opened a new powder coatings facility in Chengdu, western China. According to a press release, “The new site will help to meet growing demand in the region and supply customers with a full range of powder products for the automotive, construction, furniture and IT industries.” AkzoNobel now has more than 30 production sites in total across the whole of China. “The opening of our Chengdu production site will strengthen our position as the global leader and China’s largest powder coatings supplier,” said Conrad Keijzer, AkzoNobel’s Executive Committee member responsible for Performance Coatings. “It will allow us to leverage the strong growth that we see in the western provinces of China, furthering our organic growth momentum.” The release went on to say the investment in the new site, “... reflects the Chinese government’s Western Development Policy, which has prompted rapid industrial growth in the region. For example, Longquanyi District – where the Chengdu plant is located – has become one of the largest car manufacturing centers in the country.”
|AkzoNobel’s new powder coatings facility in Chengdu, China. AkzoNobel now owns
more than 30 production sites across China.
- Sherwin-Williams will announce year-end 2016 and fourth quarter results prior to market open on Thursday. A conference call will follow at 11 a.m. EST. Participating in the call will be the new Chairman, President and Chief Executive Officer, John Morikis.
- 3M also announces its results later this week. Analysts are expecting earnings per share of $8.45 to $8.80, an increase of 4 to 8 percent over last year's results. 3M announced last week it sold off its safety eyewear business. In 2017 3M is expected to invest approximately $1.8 billion in research and development.
- BASF was upgraded by analysts at J.P. Morgan from an “underweight” rating to an “overweight” rating in a research report issued Thursday. The company's Canadian division was also recognized as one of Greater Toronto’s Top Employers for 2017. The award cited BASF Canada for its, “... work atmosphere, employee communications, health benefits, family-friendly workplace and community involvement.”
- Uni-Select continues to grow its business. Last week the company's subsidiary FinishMaster announced two more acquisitions in the northeast of the US. The two new acquisitions are Blaise of Color and Crown Auto Body Supply, which distribute industrial and automotive paint and supplies in South Plainfield, New Jersey and Salem, Massachusetts.
- Boyd Group Income Fund announced a cash distribution for the month of January 2017 of $0.043 per trust unit. The distribution will be payable February 24, 2017.
Related Market Notes
- The UBS study mentioned above finds that well-heeled investors are confident Trump's policies will improve the American economy. According to the results, “Sixty-eight percent of the investors expect the S&P 500 index to deliver strong returns over the next six months, versus just 25% before the US election.”
- Fiat Chrysler Automobiles was found to have unregistered software on its vehicles. Some wonder if the company was trying to cheat emissions control processes. Potential fines could “considerably undermine” the company’s business plan, according to Toronto-based credit rating agency, DBRS. According to a report by the Financial Post, “DBRS placed FCA’s credit rating under review Monday, questioning what the associated costs could mean for the company’s five-year business plan, which aims to boost global sales to seven million vehicles by 2018 from 4.6 million in 2015.” A report released by DBRS said, “DBRS notes further, however, that any significant costs could considerably undermine the company’s current business plan.” The newspaper report mentioned that two Canadian law firms—Siskinds LLP and Merchant Law Group LLP—have already filed proposed class-action lawsuits against Chrysler.
- Canadian auto parts makers Magna International and Linamar both took a hit after Trump targeted German car manufacturers. Trump's tweets are becoming famous for knocking down the value of publicly-traded companies. The two Canadian parts makers were caught up in the volatility that followed on Trump's quotes to a German newspaper in which he promised to impose a 35 percent tax on German cars imported to the US. Volkswagen, BMW and Daimler shares all took a hit, but so did the Canadian parts makers. Both Magna and Linamar have plants in Germany that export to the US and would be hit by that tax. Magna shares fell three percent on the day, Linamar was down 3.5 per cent. “Until specific policy changes are announced, it is difficult to determine what the impact on the auto sector and Magna may be from potential trade/taxation changes in the U.S.,” said Steve Arthur, an RBC Capital Markets analyst, in a report released last week. Magna chief executive, Donald Walker, was quoted as saying he expects a slowdown of new capital flowing into Mexico following on Trump's comments.
- The head of the Bank of Canada, Stephen Poloz, says a, “...rate cut is ‘on the table’ amid concern over Trump policies Canadian economy will take a 'material' hit from a protectionist Trump administration ...”
- Trump's right hand man (and son-in-law) Jared Kushner is reportedly flying to Calgary to address a two-day meeting of Canadian government ministers. The meeting has been called by PM Justin Trudeau as an emergency meeting to plan the government's response to the Trump presidency.
A report from the Globe & Mail notes that, “To head off border taxes on Canadian exports, industry leaders need to explain how closely integrated the auto industry is in Canada, the U.S. and Mexico – and how U.S. interests would be hurt if such taxes were imposed.” The government said Monday morning it would cut Mexico loose and, “… consider bilateral trade measures during renegotiation of the North American Free Trade Agreement ...” David MacNaughton, Canada’s ambassador to the US, will also attend the meeting.
- The Trump administration also announced Monday morning that the US had pulled out of negotiations around the Transpacific Partnership (TPP) trade deal.