Winnipeg-based Boyd Group Income Fund, one of the largest collision-repair operators in North America, hit a record high last week amid some analyst target price increases. The units of the fund, which include such brands as Boyd Autobody & Glass in Canada and Gerber Collision & Glass in the United States, are up about 65 per cent over the past year.Josh Dookhie
Investors betting on increasingly congested roadways and more unpredictable weather across North America are making a profit on collision and windshield repair operator Boyd Group Income Fund, and analysts believe it has more room to run.
The Winnipeg-based fund, one of the largest collision-repair operators in North America, hit a record high last week amid some analyst target price increases.
The units of the fund, which include such brands as Boyd Autobody & Glass in Canada and Gerber Collision & Glass in the United States, are up about 65 per cent over the past year.
All seven analysts who cover Boyd Group recommend it as a "buy," believing the fund will continue to grow through acquisitions and more collision work due to an increase in driving and more severe weather events across North America.
"People, unfortunately, are always going to be crashing their cars," especially when the weather is bad, said National Bank Financial analyst Trevor Johnson, who has a $50 target.
While the units are getting expensive, "I think there's still more growth ahead," Mr. Johnson said.
Octagon Capital Corp. analyst Bob Gibson increased his target to $53.50 from $50.25 on Monday, citing benefits from lower gas prices across North America.
"When people drive more, they are more likely to get into accidents – good news for Boyd Group," said Mr. Gibson in a note.
Analysts also see Boyd Group benefiting from a lower Canadian dollar, since 90 per cent of its revenue is from the United States, and believe the business can remain strong during economic downturns.
Laurentian Bank Securities analyst Michael Glen increased his target last week to $57 from $53, noting the company's balance sheet is "extremely well positioned for M&A."
Boyd Group is the only public player in the highly fragmented North American auto repair industry, which is valued at more than $30-billion. There are three major private-equity backed organizations, "all looking to aggressively expand their respective networks," Mr. Glen said in a note.
Boyd Group, which started with one repair shop in Winnipeg in 1990, has grown to 318 today, which is about double its size since 2011.
"Though growth has been prolific, we believe there is still significant opportunity for the company to grow," CIBC World Markets analyst Mark Petrie said in a note last week, initiating coverage of the fund with a $55 target.
That includes growth in its formal agreements with insurance companies, known as direct-repair programs.
This is when insurance companies refer vehicles' owners who have been in an accident to certain repair shops, which analysts say are often the larger, more established chains.
"We expect this trend to continue and believe Boyd's existing scale and improving systems make it well positioned to meet the continual demands of insurance companies," Mr. Petrie said.
About 90 per cent of Boyd Group's business is paid through insurance, and the bulk of that is through the insurance programs, said Brock Bulbuck, the company's chief executive.
In an interview, Mr. Bulbuck said the company is looking to grow more than 20 per cent a year through a combination of same-store sales growth and acquisitions of both single and multistore operations.
"We are a leader in a consolidating industry, and we have continuing opportunity to grow and achieve unitholder value into the future," said Mr. Bulbuck.
Risks for Boyd Group include trouble finding and integrating new acquisitions, weakening relationships with insurance companies and a drop in vehicles collisions, all of which analysts say are low.
Christopher Pasut, portfolio manager at OtterWood Capital Management Inc., said his firm has owned the income fund for a couple of years, driven largely by the growth and size of the collision-repair market.
Mr. Pasut sees more small repair shop owners looking to sell their business in the near term, as they enter their retirement years.
"It's a great story in a great industry … ripe for consolidation," said Mr. Pasut.