Tuesday Ticker: Analysis of the Boyd/Assured deal; AutoCanada announces share buyback

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By Jeff Sanford
Toronto, Ontario — June 12, 2017 — This week’s edition of Tuesday Ticker brings you a new level of detail on the Boyd/Assured deal, share buyback news from AutoCanada, good news from the Canadian economy and much, much more!
Uni-Select announced the opening of a new corporate store in London, Ontario. “The opening of the first BUMPER TO BUMPER corporate store in London is an opportunity to expand the brand’s presence nationally and grow in a key market,” said Gary O’Connor, President and CEO of the company’s Canadian Automotive Group in a press release. The same release noted that the opening is aligned “… with Uni-Select’s commitment to extend geographic coverage and build density in core markets across Canada.” The store will employ 20 team members. 
The BUMPER TO BUMPER store banner is a “turnkey program for auto parts wholesalers looking for complete program support, a strong brand image and a very aggressive go-to-market approach,” according to the press release. BUMPER TO BUMPER was acquired by Uni-Select in 2006. Over 120 auto parts stores operate in Canada under the BUMPER TO BUMPER banner. Of those, 57 are corporate stores.
AutoCanada announced it has received approval from the Toronto Stock Exchange to commence a “normal course issuer bid.” In plain English that means AutoCanada may acquire up to 1,372,984 of its own common shares. This number represents approximately 5 percent of the issued and outstanding common shares of the company. This will be welcome news to investors. By reducing the total number of shares outstanding, each share receives a slightly larger slice of revenue. Share buybacks are thought to help buoy a stock price and are generally welcomed by investors. 
According to the press release announcing the buyback, “Subject to certain prescribed exemptions and any block purchase made in accordance with the rules of the TSX, daily purchases will be limited to 24,247 Common Shares, which is equal to 25 percent of the average daily trading volume of 96,990 during the last six months.” AutoCanada operates 57 franchised dealerships, comprised of 65 franchises, in eight provinces. In 2016 it processed some 864,000 service and collision repair orders in 928 service bays.
Boyd Group
– In the wake of the recent blockbuster deal that sees Boyd Group Income Fund buying up Assured Automotive, analysts are sharpening up their outlook on Boyd units. Steven Hansen, an analyst with Toronto-based brokerage Raymond James, recently increased its price target price to $110.00 from $100.00. In a report, Hansen discussed the deal and the reasoning behind his improved outlook on Boyd units. The report will be interesting to anyone wondering about the future of Canadian collision repair.
“We believe this deal looks solid on all accounts, offering Boyd not only enhanced scale and geographic diversity, but also attractive financial accretion and future growth,” writes Hansen. He notes that the deal will contribute to the bottom line of Boyd right away. The $193.6 million price tag is a combination of cash ($146 million) and stock ($47.5 million at about $88 per unit). 
The deal is expected to close within 30 to 60 days, or the third quarter of this financial year. Hansen also points out that the acquisition will give Boyd a “jump-point for further growth into Eastern Canada.” 
All-in, Boyd will be one of the largest operators in North America with 474 locations. Hansen’s report also notes that Assured is a unique company and offers Boyd far more than more locations. Specifically, “we believe [Assured] also brings with it several unique attributes that point toward enhanced margins and growth over time, including: 1) A highly accomplished management team still keen to grow; and, 2) A unique, high-margin business model in the firm’s exclusive dealership in-take centres …” 
Hansen describes those dealership in-take centres as “one of the most intriguing aspects of the transaction—a factor that could have important long- term implications on Boyd’s broader singe-store-sales growth and earnings margin targets.” Assured’s dealership in-take centres are exclusive contracts with traditional OEM dealerships, whereby Assured essentially handles all the collision work for a facility, even embedding one of their staff at the dealership to handle customers. This allows dealers to offer collision services, but without having to make the capital investment required to actually run a collision shop. 
Boyd Group has stated publicly that it intends to double the size of its operations between 2015 and 2020. According to Hansen, that target is “looking increasingly conservative in our view.”=
Related Market Notes
– A report in the Financial Times finds that, “Volkswagen began marketing a hybrid bond on Wednesday, in the German carmaker’s first attempt to issue the riskier class of debt since its emissions scandal broke in September 2015. Volkswagen is looking to raise two euro perpetual bonds … Volkswagen’s hybrid bond [which have debt and equity like attributes] will carry a Baa2 rating from Moody’s and BBB- rating from S&P, lower than its A3 and BBB+ senior ratings … Volkswagen was once one of the most frequent issuers of these securities, but has been unable to tap the market since it emerged in September 2015 that it had cheated on emissions test for its diesel vehicles. The company recently raised its first conventional euro bond since that scandal broke, selling €8bn of new debt in March – in Europe’s biggest corporate debt sale this year,” according to the report.
– A new Royal Bank of Canada economic report finds that, “The Canadian economy is humming along as the country nears its 150th birthday …” According to RBC, consumer spending, housing starts, and a “strong turnaround in business investment are largely responsible for the continued momentum that has built on the robust gains in the second half of last year.” 
The bank expects GDP to grow by 2.6 per cent in 2017 and 2.1 per cent in 2018. “With business investment on the rise and government spending on infrastructure ramping up, RBC Economics projects the economy will grow at nearly double the average pace of the prior two years,” according to a press release issued by RBC. The really good news here is that this would be the strongest economic performance we’ve seen in Canada in the last three years. 

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