It’s not about the dividend…

Boyd Group Income Fund along with its operating company, the Boyd Group Inc. is a leading operator of non-franchised collision repair centers in North America. It is one of the largest by the number of locations and sales. The company offers collision repair, glass repair, and replacement services. It also offers glass, emergency roadside and first notice of loss services.

Boyd runs more than 32,000 shops in service. The company operates under the trade names Boyd Autobody & Glass and Assured Automotive in five Canadian provinces and Gerber Collision & Glass in 27 U.S. states. It is also a major retail auto glass operator in the U.S. with locations across 34 U.S. states.

Boyd Group derives 15%-20% of its revenue from Canada, while the remainder is from the U.S. The company’s businesses include Boyd autobody and glass, Gerber collision and glass, Gerber National claim services, Glass America and assured automotive.

Investment Data

Revenue Growth & Market Exposure

Boyd Group operates in a recession resilient industry. It earns more than 90% of its revenues from insurance companies (mostly government owned) while only 10% is paid by customers which improve the visibility of its cash flows. Boyd’s revenues have grown at more than 26% CAGR over the last five years.

Boyd is growing both organically and through acquisitions. Given its large scale, prudent management, and strong balance sheet, Boyd is well positioned to take advantage of large acquisition opportunities. It is also favorably placed to take advantage of the direct repair programs (DRPs) that are established between insurance companies and collision repair shops in both Canada and the U.S. In 2015, Boyd rolled out and implemented its Wow Operating Way process improvement initiative to focus on driving customer satisfaction, repair cycle times and operational metrics.

With more than 25 years in business, the company enjoys strong relationships with insurance carriers. Boyd is known for its impeccable customer service and quality which are critical for maintaining same-store sales growth. It is targeting to Increase its same-store sales by broadening its product and service offerings in all markets. The company added over 80 new locations and expanded its footprint in four new states of Alabama, Missouri, Texas, and Wisconsin during 2018. It achieved organic growth of 4.8% through same-store sales increases during the same time. Boyd is also focusing on increasing its share of the auto glass repair and replacement business. Its glass operation business is an asset light model and is integrated into the collision business.

Boyd Group is aiming at achieving an average annual growth rate of 15%. Continuous efforts in this direction have resulted in the reduction of operating expenses (as a percentage of sales) over the past years.

Dividends

Boyd Group is a Canadian Dividend Aristocrat. 2018 marked the 11th consecutive year of dividend increases. The company has a low annual yield of 0.32% and a low payout ratio of 13.2%. The company last raised its dividend by 2.3% and has grown its dividend by 9.9% CAGR over the last decade. It has been growing its dividend given its high cash flow from operations.

Boyd’s earnings have grown at more than 33% CAGR over the last five years. The company is well positioned to benefit from attractive acquisition opportunities in the highly fragmented market. The collision repair industry in North America is estimated at ~$30-$40 billion. Nearly 80% of the industry is controlled by small business owners and Boyd has a good track record of acquiring small collision repair centers throughout North America and successfully integrating them. It is well positioned to take advantage of the industry consolidation trends and has over $300 million in cash and ample credit facility availability to act on opportunities. Since Boyd is targeting to double its size by 2020, it is looking at many attractive opportunities to make accretive acquisitions.

Boyd is the only public company in the auto collision repair industry in North America. The company should benefit from its large presence in the U.S. A healthy balance sheet and growing free cash flows should also support future dividend hikes.

Competition

The collision repair industry in North America is very competitive. Boyd competes with other multi-location collision repair operators in different markets. It also faces competition from other automotive related businesses. However, Boyd’s significant customer and supplier relationships provide it with compelling competitive advantages as opposed to its peers.

Bottom Line

Boyd Group is targeting to double the size of its business during the five-year period ending in 2020. Its focus on improving same-store sales growth as well as acquisition and developing collision repair business locations should drive future growth. The company is poised to gain from the highly fragmented industry given its strategy to grow through acquisitions. Cash distributions, conservative payout ratio, and high ROIC growth strategy further make it an attractive proposition.

Boyd consistently surfs at the bottom of the Snapshot Canadian Screener due to the high growth nature. As a high growth stock, the P/E tends to be high, the yield tends to be low and the price tends to surf near the 52-week high. It makes for a tough decision on choosing an entry point. I have usually bought such stock on the conviction of the business like Visa, MasterCard, Costco and Microsoft. A bit of a difference compared to Boyd. Personally, it’s not a business I am interested in so it’s a pass for my portfolio but if you have faith in the business, there could be profits but little dividend.

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