FLASH UPDATE
KeyStone’s Small-Cap Stock Report
April 2016
KeyStone’s
Small-Cap Stock Report
Independent Equity Advisors
Editor: Ryan Irvine, BBA (Finance)
Senior Analyst: Aaron Dunn, CFA
Boyd Group Income Fund
(BYD.UN: TSX)
Current Price (April 4/2016): $74.23
recommendation: NEAR-TERM: HOLD/LONG-TERM: BUY
Underfollowed Auto Repair Company Announces Record 2015 Results, Revenue & Adjusted
EBITDA Growth Accelerates – Stock up over 3,200% - Ratings: Near-Term Change, Long-Term
BUY
Industry: Consumer Products - Auto Recommended: November 2008
Recommendation Price: $2.30
Current Price: $74.23
Market Cap: $1,214,726,510
Shares Outstanding: 16,359,953
Fully Diluted: 19,019,521
Selected ANNUAL Data
Income Statement
Revenues:
Adjusted Net
Income:
2015
2014
$1,174,077,000 $844,104,000
$40,500,000 $30,000,000
Adjusted Net
Income/Shr.:
$2.459
$1.821
Fully Diluted Adj.
Income/Shr:
$2.129
$1.577
Ratings
Boyd Group Income Fund (the Fund), through its operating company, The Boyd Group
Inc. and its subsidiaries, is the largest operator of non-franchised collision repair centers
in North America in terms of number of locations and one of the largest in terms of sales.
The company currently operates locations in five Canadian provinces under the trade name
Boyd Autobody & Glass, as well as in 19 U.S. states under the trade names Gerber Collision
& Glass, Champ’s Collision Centers and Craftmaster Auto Body. Champ’s Collision Centers
and Craftmaster Auto Body will be rebranded within the next six to twelve months as part
of the company’s brand strategy. Boyd is also a major retail auto glass operator in the U.S.
with locations across 31 U.S. states under the trade names Gerber Collision & Glass, Glass
America, Auto Glass Service, Auto Glass Authority and Autoglassonly.com. The company
also operates a third party administrator Gerber National Claims Services (GNCS) that offers first notice of loss, glass and related services. GNCS has approximately 5,500 affiliated
glass provider locations and 4,600 affiliated emergency roadside services providers throughout the U.S.
FINANCIAL HIGHLIGHTS & KEY AREAS OF GROWTH
Value
P/E (TTM):
30.18
P/S (TTM):
1.04
P/B:
6.61
Current Ratio:
1.01
D/E:
1.17
Boyd was originally recommended in November 2008, when the Fund’s units traded at
$2.30. The stock was recently upgraded on January 29th to both a near-term and long-term
BUY with the shares trading down from recent highs to the $60-$62 range. We are happy
to report the stock has rallied significantly (21%) over the past week following the release of
record Q4 and 2015 annual results. The stock has now returned over 3,200% since our original recommendation at $2.30. Today, we update our ratings and take a look at the company’s
recent results and outlook moving forward.
2015 ANNUAL HIGHLIGHTS
1
Focus BUY Portfolio
Copyright 2016 KeyStone Financial Publishing Corp.
FLASH UPDATE
KeyStone’s Small-Cap Stock Report
April 2016
KeyStone’s
Small-Cap Stock Report
Independent Equity Advisors
Editor: Ryan Irvine, BBA (Finance)
Senior Analyst: Aaron Dunn, CFA
Boyd Group Income Fund
(BYD.UN: TSX)
Current Price (April 4/2016): $74.23
recommendation: NEAR-TERM: HOLD/LONG-TERM: BUY
Underfollowed Auto Repair Company Announces Record 2015 Results, Revenue & Adjusted
EBITDA Growth Accelerates – Stock up over 3,200% - Ratings: Near-Term Change, Long-Term
BUY
Industry: Consumer Products - Auto Recommended: November 2008
Recommendation Price: $2.30
Current Price: $74.23
Market Cap: $1,214,726,510
Shares Outstanding: 16,359,953
Fully Diluted: 19,019,521
Selected ANNUAL Data
Income Statement
Revenues:
Adjusted Net
Income:
2015
2014
$1,174,077,000 $844,104,000
$40,500,000 $30,000,000
Adjusted Net
Income/Shr.:
$2.459
$1.821
Fully Diluted Adj.
Income/Shr:
$2.129
$1.577
Focus BUY Portfolio
Sales totaled $1.174 billion for the year ended December 31, 2015, an increase of $330.0 million, or 39.1%, compared to 2014. The increase in sales was the result of the following:
• $190.6 million of incremental sales were generated from 39 new single locations as well
as 25 Collision Revision locations, 16 Collex locations, seven Champ’s locations, six
Craftmaster locations as well as incremental glass network and other network sales from
the acquisition of Netcost.
• Same-store sales excluding foreign exchange increased $39.5 million or 5.6%, and increased a further $105.0 million due to the translation of same-store sales at a higher
U.S. dollar exchange rate.
• Sales were affected by the closure of under-performing facilities which decreased sales
by $5.1 million.
P/E (TTM):
30.18
P/S (TTM):
1.04
For the year ended December 31, 2015, Adjusted EBITDA totaled $101.7 million, or 8.7%,
of sales compared to Adjusted EBITDA of $69.0 million, or 8.2%, of sales in the prior year.
The $32.7 million increase was primarily the result of incremental EBITDA contribution
from acquisitions and new locations, combined with increases in same-store sales. Changes
in U.S. dollar exchange rates in 2015 increased Adjusted EBITDA by $13.8 million. The increase as a percentage of sales was primarily the result of improved operational performance
in several markets.
P/B:
6.61
SUBSEQUENT TO QUARTER END
Current Ratio:
1.01
D/E:
1.17
Subsequent to the end of the quarter, the company added 11 locations, including a five location multi-service operator and two locations in British Columbia. Boyd also acquired the
glass repair assets of Ryan’s Auto Glass in Cincinnati, Ohio.
Ratings
Value
OUTLOOK & GROWTH
The collision repair industry in North America is estimated by Boyd to represent approximately $30 to $40 billion U.S. in annual revenue. The industry is highly fragmented, consisting primarily of small independent family owned businesses operating in local markets. It
is estimated that car dealerships have approximately 23% of the total market. It is believed
that multi-unit collision repair operators with greater than $20 million in annual revenues
(including multi-unit car dealerships) now have approximately 19% of the total market.
2
Copyright 2016 KeyStone Financial Publishing Corp.
FLASH UPDATE
KeyStone’s Small-Cap Stock Report
April 2016
KeyStone’s
Small-Cap Stock Report
Independent Equity Advisors
Editor: Ryan Irvine, BBA (Finance)
Senior Analyst: Aaron Dunn, CFA
Boyd Group Income Fund
(BYD.UN: TSX)
Current Price (April 4/2016): $74.23
recommendation: NEAR-TERM: HOLD/LONG-TERM: BUY
Underfollowed Auto Repair Company Announces Record 2015 Results, Revenue & Adjusted
EBITDA Growth Accelerates – Stock up over 3,200% - Ratings: Near-Term Change, Long-Term
BUY
Industry: Consumer Products - Auto Recommended: November 2008
Recommendation Price: $2.30
Current Price: $74.23
Market Cap: $1,214,726,510
Shares Outstanding: 16,359,953
Fully Diluted: 19,019,521
Selected ANNUAL Data
Income Statement
Revenues:
Adjusted Net
Income:
2015
2014
$1,174,077,000 $844,104,000
$40,500,000 $30,000,000
Adjusted Net
Income/Shr.:
$2.459
$1.821
Fully Diluted Adj.
Income/Shr:
$2.129
$1.577
Ratings
Value
P/E (TTM):
30.18
P/S (TTM):
1.04
P/B:
6.61
Current Ratio:
1.01
D/E:
1.17
3
Focus BUY Portfolio
Boyd continues to execute on its growth strategy and an abundance of opportunities continue to be available for accretive growth. During 2015, the company added 29 locations while
at the same time achieving organic growth through same-store sales increases of 5.6%.
Looking forward, management has stated the company will continue to pursue accretive
growth through a combination of organic growth (same-store sales growth) as well as acquisitions and new store development. Acquisitions will include both single location as well as
multi locations. Combined, this strategy is expected to double the size of the business and
revenues (on a constant currency basis) over the next 5 years, implying an average annual
growth rate of 15%. With prudent financial management and a solid balance sheet, Boyd
is further well-positioned to take advantage of large acquisition opportunities, should they
arise, which could accelerate the time frame to double its size. It is expected that this growth
can be achieved while continuing to be disciplined and selective in the identification and
assessment of all acquisition opportunities.
As performance based Direct Repair Programs (DRP) with insurance companies continue
to develop and evolve it is becoming increasingly important that top performing collision
repairers, including Boyd, continue to drive towards higher levels of operating performance
as measured primarily by customer satisfaction ratings, repair cycle times and average cost
of repair. To this end, Boyd will continue to make investments to enhance its processes and
operational performance, including maintaining a team of internal resources, which it transitioned to in 2015, as a replacement to external consulting services.
Management remains confident in its business model and its ability to increase market share
by expanding its presence in North America through strategic acquisitions alongside organic growth from Boyd’s existing operations. Accretive growth remains the company’s focus
whether it is through organic growth or acquisitions. The North American collision repair
industry remains highly fragmented and offers attractive opportunities for industry leaders
to build value through focused consolidation and economies of scale. As a growth company,
Boyd’s objective continues to be to maintain a conservative distribution policy that will provide the financial flexibility necessary to support growth initiatives while gradually increasing distributions over time.
Copyright 2016 KeyStone Financial Publishing Corp.
FLASH UPDATE
KeyStone’s Small-Cap Stock Report
April 2016
KeyStone’s
Small-Cap Stock Report
Independent Equity Advisors
Editor: Ryan Irvine, BBA (Finance)
Senior Analyst: Aaron Dunn, CFA
Boyd Group Income Fund
(BYD.UN: TSX)
Current Price (April 4/2016): $74.23
recommendation: NEAR-TERM: HOLD/LONG-TERM: BUY
Underfollowed Auto Repair Company Announces Record 2015 Results, Revenue & Adjusted
EBITDA Growth Accelerates – Stock up over 3,200% - Ratings: Near-Term Change, Long-Term
BUY
Industry: Consumer Products - Auto Recommended: November 2008
Recommendation Price: $2.30
Current Price: $74.23
Market Cap: $1,214,726,510
Shares Outstanding: 16,359,953
Fully Diluted: 19,019,521
CONCLUSION
Selected ANNUAL Data
Income Statement
Revenues:
Adjusted Net
Income:
2015
2014
$1,174,077,000 $844,104,000
$40,500,000 $30,000,000
Adjusted Net
Income/Shr.:
$2.459
$1.821
Fully Diluted Adj.
Income/Shr:
$2.129
$1.577
Ratings
Value
P/E (TTM):
30.18
P/S (TTM):
1.04
P/B:
6.61
Current Ratio:
1.01
D/E:
1.17
4
Focus BUY Portfolio
2015 was another strong year for Boyd, continuing the successful execution of the company’s three-pronged growth strategy: to grow through the addition of single-store locations, acquiring multi-shop operations and increasing same-store sales. Management stated
that Boyd has experienced significant success with all three to date and intends to continue
with this strategy, however, the team is prepared to evaluate and revise these strategies, as
deemed necessary, to ensure that Boyd continues to deliver meaningful growth in a changing market.
Once again, we were very pleased with the company’s 2015 results, which marked new all
time highs in terms of revenues, adjusted EBITDA, and adjusted earnings. Boyd also surpassed 300 locations in the United States, expanded its U.S. presence to 19 states (from 17),
exceeded $1 billion in revenue, and crossed $1 billion in market capitalization.
Boyd continues to execute on its growth strategy and an abundance of opportunities continue to be available for accretive growth. During 2015m the company added 29 locations while
at the same time achieving organic growth through same-store sales increases of 5.6%.
Boyd continues to grow via its accretive acquisition strategy (in fact, growth accelerated
this past year) but is no longer cheap trading with a trailing price to adjusted earnings multiple based on 2015 actual results of around 30 and at around 26 times next year’s estimates
(the average market PE is in the range of 16-17). If we look at adjusted EBITDA, the stock
appears a bit more appetizing priced currently at around 12 times its 2015 figure and just
over 10 times next year’s expected mark. The market trades somewhere in the 8-12 times
range, depending on your definitions of EBITDA. While not cheap, when you can purchase
a company which has continued to deliver market beating growth for the past 8 years at just
above market equivalent multiples, it begins to look attractive. To be frank, returns will not
come close to what we have seen over the past 8-years, but the company’s strategic growthby-acquisition and market share strategy is a model that continues to outperform in a low
growth environment. We continue to see Boyd as a unique way to play the strength in the
U.S. economy.
Copyright 2016 KeyStone Financial Publishing Corp.
FLASH UPDATE
KeyStone’s Small-Cap Stock Report
April 2016
KeyStone’s
Small-Cap Stock Report
Independent Equity Advisors
Editor: Ryan Irvine, BBA (Finance)
Senior Analyst: Aaron Dunn, CFA
Boyd Group Income Fund
(BYD.UN: TSX)
Current Price (April 4/2016): $74.23
recommendation: NEAR-TERM: HOLD/LONG-TERM: BUY
Underfollowed Auto Repair Company Announces Record 2015 Results, Revenue & Adjusted
EBITDA Growth Accelerates – Stock up over 3,200% - Ratings: Near-Term Change, Long-Term
BUY
Industry: Consumer Products - Auto Recommended: November 2008
Recommendation Price: $2.30
Current Price: $74.23
Market Cap: $1,214,726,510
Shares Outstanding: 16,359,953
Fully Diluted: 19,019,521
Selected ANNUAL Data
Income Statement
Revenues:
Adjusted Net
Income:
2015
2014
$1,174,077,000 $844,104,000
$40,500,000 $30,000,000
Adjusted Net
Income/Shr.:
$2.459
$1.821
Fully Diluted Adj.
Income/Shr:
$2.129
$1.577
Given the sharp near-term appreciation in Boyd’s shares, we are adjusting our near-term rating to HOLD. It is a company we would look for new clients to add on 10% pullbacks in the
near term. We maintain our long-term BUY on the stock for investors with an investment
horizon of greater than one year. Again, our near-term rating is shifted to HOLD (6-months
or less) based on current valuations and the 20% increase in share price over the past couple
weeks and our long-term rating remains at BUY with the stock in our Focus BUY Portfolio.
Ratings
Value
P/E (TTM):
30.18
P/S (TTM):
1.04
P/B:
6.61
Current Ratio:
1.01
D/E:
1.17
5
Focus BUY Portfolio
Copyright 2016 KeyStone Financial Publishing Corp.
Ratios and Ratings
KeyStone’s Small-Cap Stock Report
April 2016
BV (BV/Share): Book value (book value per share)
Book value per common share calculated as total shareholder’s equity less
preferred equity, and divided by the number of common shares outstanding. Should the company decide to dissolve, the book value per common
share indicates the dollar value remaining for common shareholders after
all assets are liquidated and all creditors are paid.
Net working capital
A measure of the company’s ability to carry on its normal business comfortably and without financial stringency, to expand its operations without the need of new financing, and to meet emergencies and losses. Calculated by deducting current liabilities from the current assets.
D/E: Debt-to-equity ratio
A measure of a company’s financial leverage calculated by dividing long
term debt by shareholders equity. It indicates what proportion of equity
and debt the company is using to finance its assets.
P/B: Price-to-book ratio
Calculated as a stock’s market value (current closing price) divided by its
latest quarter’s book value. While a lower P/B ratio could mean that the
stock is undervalued, it could also serve as a sign of weak fundamentals,
and as with most ratios, this varies a fair amount by industry.
Current ratio
One of many ratios designed to evaluate short-term liquidity of a company. Calculated as current assets divided by current liabilities, this ratio
gauges the level of cash resources relative to current liabilities as a measure of cash obligations.
EBITDA
Earnings before interest, taxes, depreciation, and amortization. EBITDA
is calculated as revenue minus expenses (excluding tax, interest, depreciation, and amortization).
EPS: Earnings per share
A company’s earnings available to common shareholders, also known as
net income or net profit, divided by the number of shares outstanding.
EV: Enterprise value
Enterprise value is calculated as market capitalization less cash and
equivalents, plus debt. Evaluation of EV relative to the company’s trailing
EBITDA is used in identifying potential takeover targets.
FCF: Free cash flow
Capital expenditures are subtracted from cash flow from operating activities to arrive at free cash flow, which intends to measure the cash available
to a company after making all cash outlays necessary to maintain existing
productive capacity (as measured by capital expenditures on a company’s
cash flow statement).
PEG ratio
The price/earnings to growth, or PEG ratio is calculated as P/E ratio divided by a company’s annual EPS growth. The PEG ratio is used to determine a stock’s value while taking into account earnings growth.
P/FCF: Price-to-free cash flow ratio
Calculated as a company’s current share price divided by its free cash flow
per share (i.e., free cash flow divided by the number of company’s shares
outstanding) over the last four quarters (called “TTM,” or “trailing 12
months” calculation). It is a measure of the market’s expectations regarding a firm’s future financial health.
P/S: Price-to-sales ratio
It is calculated as a stock’s current market price divided by its sales (revenue) per share. When calculating this ratio, we use the company’s revenue from its latest four quarters, or on a TTM basis.
ROE: Return on equity
A measure of a corporation’s profitability, calculated as net income divided by shareholder’s equity. ROE is often useful in comparing the profitability of a company to other firms in the same industry.
Featured companies in KeyStone’s Small-Cap Stock Report are evaluated on a scale of 1 to 5 on each of the following criteria:
Value: 1 - poor investment value
Risk/Liquidity:
5 - excellent investment value
Growth: 1 - poor growth potential
5 - excellent growth potential
Overall:
1 - high exposure to liquidity concerns
5 - low exposure to liquidity concerns
1 - poor fundamental characteristics
5 - excellent fundamental characteristics
Disclosure
Stock Holding
6
Other
Companies
KeyStone
KeyStone Employees
Related Companies
Investment Banking Client
Related Company Business Relationship
Boyd Group Income Fund
NO
YES
NO
NO
NO
Copyright 2016 KeyStone Financial Publishing Corp.