By Jeff Sanford
Toronto, Ontario -- March 27, 2018 -- In this week's Tuesday Ticker, the boom in EV-related metals and a Canadian dealership group tests U.S. waters.
Markets continued to sell off last week. Trump’s revolving door of White House officials seems to have rattled markets. The Dow Jones average dipped into the 23,500 range on Friday, down from the record high of about 26,600 in the last week of January 2017. Economists worry a trade war between the U.S. and China would have a huge negative effect on global growth. Businesses would put off decisions around spending and investment. Managers will take a wait-and-see attitude if they think the nature of the global trade system is going to undergo serious change.
If sales of electric vehicles take off much more cobalt will be needed to manufacture huge numbers of lithium-ion batteries. According to media reports, a Russian billionaire has been buying the metal directly from mining companies and has been putting it in warehouses in Switzerland. The company holding the store is known as Cobalt 27 Capital Corp. It has almost 3,000 tons of the stuff. The price of cobalt has jumped from $21,750 a ton in February 2016 to a new record of $84,250 in early March. The company is effectively controlled by a Russian coal and steel magnate.
Could AutoCanada replicate the success of Boyd? The publicly-traded dealership group this past week announced it has made its first foray into the U.S. market with the purchase of an Illinois-based dealership group.
Boyd has had fantastic success consolidating U.S.-based collision repair shops. Not many securities have a steady and positive stock price growth like Boyd now does. No wonder the units are getting more attention from investors. Could AutoCanada be on the verge of attempting a similar roll-up of U.S.-based dealerships? Why not?
This week the company laid out $110 million to purchase of the Grossinger Auto Group in Illinois. This is the first acquisition for AutoCanada south of the border. The deal includes stores that AutoCanada would not be permitted to own in Canada. Ford, Honda and Toyota have banned publicly traded dealership groups like AutoCanada from buying up the stores. But these deals are allowed in the U.S., as well as most other nations.
The deal diversifies the company by geography and brand. The 54 franchised dealerships under the AutoCanada umbrella processed approximately 870,000 service and collision orders in over 999 service bays in 2017, bringing in over $3 billion in revenue.
Also this past week, AutoCanada announced it had signed a new credit agreement that will give it access to a maximum $1.08 billion. Of this, $350 million for acquisitions and capital expenditures. The new facility is led by Scotiabank but involves CIBC, RBC, HSBC and ATB and replaces a previous $550 million credit agreement. "This new credit facility will provide AutoCanada with the flexibility to continue to grow and acquire dealerships, finance our business and maintain a prudent approach to leverage. We thank all of our lending partners for their support in completing the syndication and their continued vote of confidence in our success," said Chris Burrows, senior vice-president and chief financial officer, in a press release.
Could AutoCanada be the next Boyd? We’ll see.