Time To Talk About The Other Boyd Company Working In The USA

I saw an article the other day that indicated the average age of vehicles in the USA was 11.4 years. This was based on research conducted by Polk Research.

The article went of further to discuss the fact Polk is predicting the percentage of cars aged 12 years or older will likely rise over the next five years creating a big opportunity for repair shops and parts stores.

Now, to me these statistics weren't a big surprise. The average age of vehicles has been rising ever since the recession hit because a lot of people were financially strapped and it was easier to keep the existing vehicle running then replace it.

As well, for those that did want to replace their vehicle, access to credit to do so was severely diminished, so they were left with no choice but to maintain their vehicle until credit requirements eased up.

So with that in mind I looked for a company that would be able to take advantage of this trend.

This brought me to Boyd Group Income Fund (OTC:BFGIF) which primarily trades on the TSX under the symbol (BYD.un).

Now while investors might be familiar with Boyd Gaming Corp. (BYD) that trades on the NYSE, because of the similarity of symbols between the two different companies I caution investors to pay attention as to which company you are dealing with.

The Boyd Group Inc. and its subsidiaries are the largest multi-site non-franchised operators of automotive collision repair service centers in North America by number of locations, with 258 locations in five Canadian provinces and fifteen U.S. states.

And this strategy has paid off for them. If you look at the latest disclosure on quarterly sales you see the following breakout:

Source (SEDAR filings)

The Company has a history of continuously acquiring single locations and more recently larger acquisitions of multi-store chains. For example, according to their latest MD&A filing on SEDAR they indicated the following activity;

"During the quarter, we completed the acquisition of Hansen Collision and Glass (with 25 locations in Michigan and northeastern Indiana). Subsequent to the quarter, we acquired six more single locations, bringing our single location additions to 16 thus far this year."

Indeed if you read their latest MD&A you will see a listing of all the various acquisitions they have done this year.

"For the quarter ended September 30, 2013, sales increased by 37.2% to $149.6 million, from $109.1 million in the prior year. The increase in sales was due primarily to multi-shop acquisitions and new locations which contributed $22.5 million of incremental sales, continued same-store sales growth of 4.4% which contributed $4.5 million of incremental sales and increased sales of $10.2 million from the glass business due primarily to the acquisition of Glass America."

Sales breakout by region were given as 14.2% Canada and 85.8% USA. This number has become more US centric as the majority of new acquisitions continue to be in the USA.

The Company just announced an increase to their monthly distribution which puts it at $0.04 or $0.48 annually. This gives a yield of approximately 1.6%. The Company has a history of giving increases in distributions raising it five times in 2010, two times in 2011, two times in 2012 and once in 2013 so far.

Adjusted Distributable Cash for the latest quarter was give as $4,446,975. With approximately 14.9 million shares outstanding (and a market capitalization of approximately $450 million) this implies the Company needs to only generate $1.8 million in cash each quarter to meet its distribution requirements.

The one concern investors may have is the relatively small amount of shares outstanding giving potential concerns over liquidity. While this is a valid concern, liquidity can be considered a two edged sword. It sucks when you want to get out in a hurry if you have a large position but it also means any fund wanting to get a large position essentially has no choice but to drive up the stock price.

That is what essentially what has happened here. As the Company goes along its path of acquisition and growth, assuming it continues the same discipline as it currently has shown, sales and cash flow should increase likely resulting in increased share value. This type of scenario has been played out in similar companies like Stella Jones (GM:STLJF) and Black Diamond (GM:BDIMF).

Source: Time To Talk About The Other Boyd Company Working In The USA

Disclosure: I am long OTC:BFGIF, GM:GM:BDIMF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.

from SeekingAlpha.com: Home Page http://seekingalpha.com/article/1870431-time-to-talk-about-the-other-boyd-company-working-in-the-usa?source=feed