Boyd can lift your portfolio but not your dividend

Boyd Group Services Inc. is a Canadian company that controls the Boyd Group Inc. and its subsidiaries. Boyd operates in Canada and the U.S., with over 600 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. Boyd 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 also a major retail auto glass operator in the U.S.

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.

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Revenue Growth & Market Exposure

The business is one of the largest operators of non-franchised collision repair centres 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.

The company 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. 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 24% CAGR in the last decade.

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 favourably 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, the company enjoys strong relationships with insurance carriers. The company 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 108 new locations and achieved organic growth of 3.3% through same-store sales increases in the last year. 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.

The company aims to achieve 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 dividend aristocrat. The company has a low annual yield of 0.28% and a low payout ratio of 18%. The company last raised its dividend by 4.5% and has grown its dividend at more than 7% CAGR over the last decade. It has been growing its dividend given its high cash flow from operations. 

Boyd targets accretive growth through a combination of organic growth as well as acquisitions and new store development. It is estimating to double the size of the business and revenues beginning in 2016 by the end of 2020.

However, the company has warned that this could be delayed due to uncertainty surrounding the COVID-19 pandemic. The company is well-positioned to take advantage of large acquisition opportunities through its strong balance sheet and a conservative payout ratio.

Boyd’s earnings have grown at more than 32% CAGR over the last three years. The company is well-positioned to benefit from attractive acquisition opportunities in the highly fragmented market. The collision repair industry in the U.S. is estimated at ~$30-$40 billion in annual revenue.

Nearly 80% of the industry is controlled by small business owners and it has a good track record of acquiring small collision repair centres throughout North America and successfully integrating them. It is well-positioned to gain from the industry consolidation trends and has over $576 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.

The business 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. 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. The company is known for its critical customer service, quality, and integrity.

Bottom Line

Boyd Group is targeting to double the size of its business during the five-year period ending in 2020. The company, however, is susceptible to weakness in demand as customers choose to defer repairs to avoid exposure and fewer miles driven.

Boyd’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.

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