Boyd can lift your portfolio but not your dividend…

Boyd Group Services Inc. is a Canadian company that controls Boyd Group Inc. and its subsidiaries. Boyd operates in Canada and the U.S., with over 740 locations. It came into existence after Boyd Group Income Fund (TSE:BYD.UN) successfully completed the conversion from an income trust to a corporate structure, operating as Boyd Group Services Inc. (TSE:BYD). 

The company offers collision repair, glass repair, and replacement services. It also offers glass, emergency roadside, and first notice of loss services. It runs more than 32,000 shops in service.

The company operates under the trade names Boyd Autobody & Glass and Assured Automotive in Canada and Gerber Collision & Glass. It is the second largest retail auto glass operator in the U.S.

Boyd Group derives 10%-15% 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.

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Investment Data

Revenue Growth & Market Exposure

The Group is one of the largest operators of non-franchised collision repair centers in North America in terms of the number of locations and sales. Over the years, the company has successfully increased its share of the auto glass repair and replacement business.

It 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 other customers, improving the overall visibility of its cash flows. It enjoys strong relationships with insurance carriers. The company provides collision repair services to insurance companies, individual vehicle owners, as well as fleet and lease customers. Boyd’s revenues have grown at nearly 21% CAGR in the last decade. 

The business 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 gain from 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 nearly 30 years in business, Boyd has developed a reputation for 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 22 new locations in the last quarter and 35 YTD. Its Q1 sales declined by ~10%. It is converting all temporary intake centers in the U.S. to full production centers in order to cater to rising demand levels expected in 2021. Boyd will also focus on adding technician capacity and re-engaging in the initiatives to address technician capacity constraints in the near future.

It 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.

Dividends

Boyd Group is a dividend aristocrat. The company has a low annual yield of 0.26% and a low payout ratio of 28%. Boyd last raised its dividend by more than 4% in 2019 and has grown its dividend at ~5% CAGR over the last decade. It has been growing its dividend given its high cash flow from operations. 

The company targets accretive growth through a combination of organic growth as well as acquisitions and new store development. The company is well-positioned to take advantage of large acquisition opportunities through its strong balance sheet and a conservative payout ratio. It is expecting to double the size of the business during the five-year period from 2021 to 2025.

The company’s earnings have grown at more than 12% CAGR over the last decade. The company is well-positioned to benefit from attractive acquisition opportunities in the highly fragmented market. The collision repair market in the U.S. is estimated at ~$41 billion in annual revenue.

Nearly 80% of the industry is controlled by independent repair shops 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 gain from the industry consolidation trends. Boyd has over $1 billion in cash and ample credit facility availability to act on opportunities. Its pipeline of acquisitions, as well as greenfield and brownfield locations, remains healthy.

The Group 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.

Competition

The collision repair industry in North America is very competitive. The company 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. The company is known for its critical customer service, quality, and integrity.

Bottom Line

The company’s focus on improving same-store sales growth as well as acquisition and developing collision repair business locations should drive future growth over the long term. The company is poised to gain from the highly fragmented industry given its strategy to grow through acquisitions. It is also well-positioned to take advantage of DRP trends with large and regional insurers.