Boyd Group Income Fund (TSX:BYD.UN) is an underrated security which I believe many investors need to have on their radars. Although Boyd is formally referred to as an income fund, huge capital gains are what investors can expect over the long haul. The company is an M&A superstar in the collision repair shop space, which is an extremely fragmented industry, meaning the sky is the limit when it comes to acquisition opportunities.
Like other outperforming industry consolidators, Boyd has a disciplined management team which knows how to spot potential synergy opportunities. The company has been acquiring smaller competitors, bringing its expertise, and delivering earnings, which will, in turn, be used to finance further acquisitions in the North American market.
Can Boyd continue to grow at this rate over the next decade?
As long as accidents happen, Boyd will continue to wheel and deal, and that’s great news for long-term shareholders. Human drivers are prone to accidents, but with the upcoming rise of self-driving cars, will accidents be a thing of the past? And if that’s the case, will Boyd get into trouble over the extremely long term (+10 years from now)?
Once self-driving cars hit the road, accidents will likely continue to happen, since the tech won’t have had a chance to be fine-tuned. Approximately 10 million self-driving cars will be on the road by 2020, according to a study by BI Intelligence Estimates. As time progresses, the rate of accidents will likely drop, and that will result in lost business for Boyd, but for investors, this probably won’t be a huge concern until at least a decade from now.
Mixed Q3 2017 results were nothing to write home about
Boyd recently reported its Q3 2017 results, which saw an adjusted EBITDA of $35.6 million, missing analyst expectations of $37 million. Hurricane season had an impact on operations with ~63 collision repair shops being closed in Florida and Georgia when the hurricane warning was in effect.
Revenue increased 13.5% on a year-over-year basis to $391.9 million, which was rather decent considering the lost business from store closures during the quarter.
Bottom line
Boyd has a healthy balance sheet, which means further acquisitions will be in the cards in the coming months, as the company puts its foot on the pedal with more M&A activity.
Although investors may fear the long-term thesis, I don’t believe the fears are warranted, at least not for the next decade. Self-driving cars aren’t perfect and will likely be accident-prone in the first few years of their existence on public roads.
Eventually, self-driving cars will reach a point where accidents may become few and far between, but until then, Boyd is a solid growth-by-acquisition story that can deliver next-level returns for shareholders.
Stay smart. Stay hungry. Stay Foolish.
