Toronto, Ontario -- June 19, 2018 -- In this week's Tuesday Ticker, AkzoNobel acquires Romanian firm, an activist investor emerges at AutoCanada, LKQ presents at investor conference and much, much more!


AkzoNobel
AkzoNobel will acquire every share of of Fabryo Corporation S.R.L. (Fabryo), a leading paint maker in Romania. With the buyout, AkzoNobel will take control of two production facilities and six distribution centres for paints and adhesives. It will also takes control of one of the largest decorative paints factories in the region. The suggestion seemed to be that production from other factories could be consolidated at the Romanian operation. The business generated revenue of €45 million in 2017. AkzoNobel CEO Thierry Vanlancker was quoted as saying, "This acquisition provides AkzoNobel with the number one position in a fast growing market... Fabryo has a proven track record when it comes to growth and profitability.” Vanlancker included a slogan in his remarks. The tag line--Winning Together: 15 by 20—is a reference to the promise management made to shareholders during last year’s takeover battle. Management has promised a 15 percent improvement in margins by 2020. The deal will be completed in the second half of 2018, assuming regulators approve.


LKQ
Major publicly traded auto recycler LKQ was featured at a recent conference targeted to investors interested in growth stocks. An analyst from brokerage William Blair summed up the presentation, noting LKQ executives said revenue growth in North America is "strong" and expect margins to recover back to normal during second half 2018. Management at LKQ also suggested that in North America auto OEMs will shortly be raising prices on parts. LKQ plans to quickly follow on those increases. Management also suggested that in the future, LKQ will charge customers for higher freight if abnormal weather hits and freight is expensive coming from far distribution centers.


Auto Parts Sector
A study from Hedges & Co estimates that $138 billion in sales of auto parts will involve the use of the internet. Whether it’s for research, sourcing or pricing, the majority of decisions around the buying of auto parts will occur online. The report notes that sales of auto parts via e-commerce continue to outpace traditional brick-and-mortar retail sales. Growth rates of online parts businesses have been 18.5 percent on average over the past few years. According to the study this remarkably high growth rate will slow slightly over the years to come. The estimate contained in the report is that the annual growth will slow to rate of 15 to 16 percent through 2021. By that time the size of the market that will be “influenced” by access to online resources will be a robust $152 billion. This market includes all channels, “chain retail stores, automobile dealers, big box retailers, local independent brick & mortar retailers, jobbers, etc. Also according to the report: Mobile auto parts e-ecommerce will break $5 billion in 2018. “Online sales transacted on mobile phones will be valued at $5.7 billion this year, a hefty 30-percent increase over 2017, and will continue to grow at a pace of 25 percent a year or greater for several years before easing off to 20 percent around 2021,” according to the press release. The study notes that a “measurable share” of companies in the aftermarket sector have not kept up with other sectors in terms of making sites mobile-friendly.


AutoCanada
An activist investor with shares in AutoCanada announced this past week that it wants the dealership group to launch a strategic review, including a possible sale of the company. Roland Keiper, president, Clearwater Capital Management, sent a letter to the chair of the board of AutoCanada, which raised concerns about how the company has been performing. Keiper mentioned that recent poor margins reported in the first quarter are a concern. Activist investors are a fascinating breed off fund manager. Rather than simply buying shares and holding shares as a passive investment, activist fund managers utilize their rights as shareholders and actively try to influence the management of the company. That is, by being active these investors hope to generate higher returns than those that accrue to investments held as passive investments. AutoCanada seems to be working on a consolidation play of dealerships across North America. The company just made its first U.S. acquisition. OEMs in Canada also just loosened the corporate regulations around ownership of dealerships. Some OEMs, Ford Canada, among them, had restricted ownership to a single person. A publicly-traded company like AutoCanada had previously been restricted from buying a Ford dealership here in Canada. Ford announced it abandoned that policy last week.

 

OEMs
General Motors said Tuesday it is still committed to an all-electric future. The company also announced it would increase production of its Bolt hatchback in the fourth quarter. Mary Barra, CEO, GM, held a meeting with reporters. She told the gathered scribes that the company has been aggressive this year in its push for electric and autonomous vehicle development. "We are committed to an all-EV future and continue to work in that direction," said Barra. "We have a strong core business and are in a transformative era. We're working to address the issues of crash-free and give people the choices of mobility. I couldn't be more excited about the future of the company and our direction.” The company also released a sustainability report, which noted that GM now has 180 autonomous vehicles in its fleet of test vehicles.

The AVs are being tested in San Francisco, Phoenix and Detroit. GM executives say they have “partnered” with utility companies and government agencies to prepare te U.S. and Chinese markets for the needed infrastructure. The sustainability report also notes that, since 2016, GM has taken more than 5,000 pounds off the weight of 14 new vehicle models. The company did so by employing light-weighting techniques such as using more high strength steel and aluminum parts. The reductions in weight are estimated to have saved 35 million gallons of gasoline.

The company also announced GM will put its hands-free driver assistance feature, Super Cruise, on all Cadillac vehicles starting in 2020. After that year it will be installed on other GM vehicles. Many think the sales of vehicles will slow down from the peak in sales registered last year. And so shares in the big OEMs traded down over the past winter. The most recent share price is, however, $44. That’s back to near recent 52-week highs. Investors clearly like the story that Barra is telling.


Britain's biggest car manufacturer, Jaguar Land Rover, last week announced it will begin to transfer production of the iconic Land Rover Discovery model from the UK to a plant in Slovakia. The company claimed Brexit had nothing to do with the move. Executives with Jaguar claimed that the decision was made long before that vote. The move will benefit the company. Ensuring access to the EU market is a higher priority than serving what would be the much smaller UK market post-Brexit.

 

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