Canada Research Boyd Group Income Fund

Transcription

Canada Research
Published by Raymond James Ltd.
Boyd Group Income Fund
April 30, 2015
Company Report - Initiation of Coverage
BYD.UN-TSX
Theoni Pilarinos CFA | 604.659.8234 | [email protected]
Edward Gudewill CFA (Associate) | 604.659.8280 | [email protected]
Special Situations
Outperform 2
C$60.00 target price
Boyd is this Good! Launching with an Outperform and $60 Target
Recommendation
We recommend investors looking for a business with attractive growth prospects, strong
and consistent free cash flow, a conservative balance sheet, and a track record of
generating solid returns purchase Boyd’s units.
Analysis



Growth through Consolidation of a Fragmented Industry—The auto collision repair
industry is very large ($30+ bln) and currently oversupplied with an abundant
number of family-owned single store locations (95% of total locations and 85% of
revenues). The majority of single store acquisitions that Boyd targets are familyowned businesses that require a succession plan or, due to limited scale and scope,
are facing financial duress. This creates an opportunity for Boyd to purchase single
store locations at very attractive prices and generate very attractive returns
(historical pre-tax returns of 35%). We believe Boyd will continue to grow by
consolidating this highly fragmented industry through both consistent additions of
single store locations (SSL) and opportunistic, albeit less frequent, multi-store
operator (MSO) acquisitions.
Same Store Sales Growth Driven by DRPs, Low Gas Prices, Strong US Economy—
The increased usage of Direct Repair Programs (DRP) by insurance companies should
allow Boyd to continue growing its market share and same store sales (SSS) growth,
in our view. In addition, we believe Boyd’s current program, called the WOW
Operating Way, being implemented company-wide will significantly reduce repair
cycle times, bolster customer satisfaction, and lead to higher throughput and SSS
growth. Finally, a strengthening US economy and the sharp decline in gasoline prices
support higher driver frequency and the need for collision repair.
Management Team with Proven Track Record of Success and Impressive per Unit
Growth—Boyd’s returns to date have been impressive with a 5-year average ROIC of
16%, revenue per unit CAGR of 18%, and adjusted EBITDA per unit CAGR of 21%. At
the same time, the company has maintained a conservative balance sheet (net-debtto-EBITDA below 2.0x), grown FCF/unit by 22% in the last 5 years, and increased its
distribution almost 20 times in the last 7 years while maintaining a payout ratio
below 30%. We believe this can be attributed to an experienced and disciplined
management team that does not overpay for acquisitions and is able to efficiently
integrate and increase the sales of its acquired locations.
Current Price ( Apr-28-15 )
Total Return to Target
52-Week Range
Suitability
Market Data
Market Capitalization (mln)
Current Net Debt (mln)
Enterprise Value (mln)
Units Outstanding (mln, f.d.)
10 Day Avg Daily Volume (000s)
Distribution/Yield
Key Financial Metrics
2014A
EV/Adj. EBITDA
13.6x
Adj. P/E
26.4x
Adj. EBITDA Margin
8.2%
Payout Ratio
17%
Net Debt/Equity (mrq)
Net Debt/Adj. EBITDA (mrq)
BVPS
To arrive at our $60.00 target price we apply a 10.0x multiple to our 2016 adjusted
EBITDA forecast. This is within Boyd’s 4-year average trading multiple and a slight
discount to its automotive retail peer group multiple of 10.4x given the company’s
smaller market capitalization (see Exhibits 26 and 27).
1Q
Mar
2Q
Jun
3Q
Sep
4Q
Dec
Full
Year
Revenues
(mln)
Adj.
EPU
2014A
C$15.0
C$18.1
C$16.9
C$19.0
C$69.0
C$844
C$1.96
2015E
20.7
21.9
22.6
23.1
88.4
1,077
2.17
2016E
NA
NA
NA
NA
101.4
1,208
2.65
Source: Raymond James Ltd., Thomson One
Please read domestic and foreign disclosure/risk information beginning on page 31 and Analyst Certification on page 30.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
C$846
C$90
C$935
16.4
34
C$0.49/0.9%
2015E
2016E
10.6x
9.2x
23.9x
19.5x
8.2%
8.4%
13%
13%
0.7x
1.3x
C$8.31
Company Description
Headquartered in Winnipeg, Manitoba, Boyd Group
Income Fund (Boyd), through its operating company,
Boyd Group Inc. and its subsidiaries, is the largest
operator of non-franchised collision repair centres in
North America in terms of number of locations and
one of the largest in terms of sales.
Valuation
Adj.
EBITDA
(mln)
C$51.70
17%
C$55.38 - C$36.45
Growth
Canada Research | Page 2 of 35
Table of Contents
Investment Thesis ................................................................................................................................................ 3
Three Pronged Growth Strategy .......................................................................................................................... 4
Single Store Location Growth: Start-ups or Acquisitions ........................................................................ 4
Multi-Store Operations Growth .............................................................................................................. 5
Same Store Sales (SSS) Growth & Operational Excellence ...................................................................... 8
Company Overview.............................................................................................................................................. 11
Industry Overview ............................................................................................................................................... 16
Financial Analysis & Outlook................................................................................................................................ 19
Valuation & Recommendation ............................................................................................................................ 22
Appendix A: Corporate Structure ........................................................................................................................ 24
Appendix B: Financial Statements ....................................................................................................................... 25
Risks ..................................................................................................................................................................... 28
Investment Thesis
We are initiating coverage on Boyd Group Income Fund (Boyd) with an Outperform rating and
$60.00 target price. We recommend investors looking for a business with attractive growth
prospects, strong and consistent free cash flow, a conservative balance sheet, and a track record
of generating solid returns purchase Boyd’s units.

Growth through Consolidation of a Fragmented Industry—The auto collision repair industry
is very large ($30+ bln) and currently oversupplied with an abundant number of familyowned single store locations (95% of total locations and 85% of revenues). The majority of
single store acquisitions that Boyd targets are family-owned businesses that require a
succession plan or, due to limited scale and scope, are facing financial duress. This creates an
opportunity for Boyd to purchase single store locations at very attractive prices and generate
very attractive returns (historical pre-tax returns of 35%+). Over the last three years, Boyd
has grown an average of 8% per year by adding ~50 single store locations (SSL) and ~$100
mln in revenues. With ample potential acquisition opportunities and a strong track record to
date, we view SSL acquisitions as a solid, sustainable avenue for future growth.

Larger Acquisitions Still on the Growth Course; Possibly at a Lower Speed—Boyd’s growth
through acquiring multi-store operators (MSO) has been prolific, averaging 25% over the last
3 years. The increased presence of private equity has caused multiples to increase and while
Boyd’s management team continues to see MSO growth prospects, they are committed to
maintaining a disciplined acquisition approach. The implication of this, in our view, is that
growth will shift increasingly towards single location growth, as well as same store sales
growth. That said, we do not dismiss potential MSO acquisitions as a catalyst for growth, as
we believe that management is adept at identifying opportunities including smaller sized
MSOs, such as that of Craftmaster (6 locations) earlier this year. We also expect the
management team is able to acquire and expand in other related markets, similar to its
acquisitions of Glass America in 2013 and Netcost Claims Services last year. Notably, Boyd
has $175-$200 mln in “dry powder” to act on opportunities as they occur.

Same Store Sales Growth Driven by DRPs, Low Gas Prices, Strong US Economy—The
increased usage of Direct Repair Programs (DRP) by insurers should allow Boyd to continue
growing its market share and same store sales growth, in our view. Increasingly, insurance
companies are becoming more objective and using repair cycle times and customer
satisfaction when determining where to refer their clients for collision repair services. In
addition, some insurance companies are moving towards fewer suppliers. In our view, these
trends play in Boyd’s favour given its status as one of the top three multi-shop operators in
North America and its current initiative called the WOW Operating Way being implemented
which should significantly reduce repair cycle times, bolster customer satisfaction, and lead
to higher throughput/SSS growth. Finally, a strengthening US economy and the sharp decline
in gasoline prices support higher driver frequency and the need for collision repair. More
specifically, January 2015 data from the US Department of Transportation show a surge in
vehicle miles by 4.9% y/y following a 5.0% increase in December, the largest increase since
March 2004 (see Exhibit 24).

Management Team with Proven Track Record of Success and Impressive per Unit Growth—
Boyd’s returns to date have been impressive with a 5-year average ROIC of 16%, revenue per
unit CAGR of 18%, and adjusted EBITDA per unit CAGR of 21%. At the same time, the
company has maintained a conservative balance sheet (net-debt-to-EBITDA below 2.0x),
grown FCF/unit by 22% in the last 5 years, and increased its distribution almost 20 times in
the last 7 years while maintaining a payout ratio below 30%. We believe this can be
attributed to an experienced and disciplined management team that does not overpay for
acquisitions and is able to efficiently integrate and increase the sales of its acquired locations.

Valuation—Going forward, we expect similar ROIC and double digit growth rates in revenue
and adjusted EBITDA. To arrive at our forecasts, we assume Boyd acquires a total of 30 and
40 locations and achieves 4% and 6% US SSS growth in 2015E and 2016E, respectively (0% in
Canada). In addition, F/X should help bolster Boyd’s topline (~8% as per our forecasts)
assuming a conversion rate of C$1.20/USD in 2015. We assume some margin expansion as
acquisitions are integrated and the business sees the benefits of the WOW Operating Way
(though we believe there is room for upside here).To arrive at our target price we apply a
10.0x multiple to our 2016 forecast. This is within Boyd’s 4-year average trading multiple and
a small discount its automotive retail peer group multiple (see Exhibits 26 and 27).
Three Pronged Growth Strategy
Boyd’s management team has communicated a clear, three pronged strategy for growth. It
includes (i) the addition of single store locations; (ii) acquiring multi-shop operations; and (iii)
increasing same store sales. Boyd’s plans for growth work hand-in-hand with its overall company
strategy, which also includes achieving operational excellence and expense reductions (see Exhibit
1). Achieving these goals, which we discuss below, positions Boyd to strengthen its DRP
relationships, increase market share, and leverage its existing infrastructure over time.
Exhibit 1: Boyd’s Strategy
- Optimizing returns from existing operations by achieving same store sales growth;
- Grow the business by 6-10% through the opening or acquiring of new single locations in addition
to being alert to opportunities for accelerated growth through the acquisition of other multilocation businesses;
- Expense management through focus on cost containment and efficiency improvements; and
- Use of best practices, economies of scale, infrastructure and systems to enhance profitability and
achieve operational excellence.
Source: Boyd Group Income Fund, Raymond James Ltd.
Single Store Location Growth: Start-ups or Acquisitions
Boyd’s goal is to grow revenues by 6-10% through the acquisition of existing single store
businesses or the start-up of new locations. Using 2014 revenues as a base year, this implies the
addition of between 19 to 32 locations (at $2.6 mln revenue/ location) over the course of 2015E.
As per the Romans Group, the collision market is very large ($30+ bln) with single stores
representing over 95% of total locations and 85% of the $30+ bln in market revenues. In our view,
this provides Boyd with ample opportunities to continue consolidating the market (please see the
Industry section of this report for more details).
When determining where to add new single store locations, Boyd targets regions where it has an
established presence in order to leverage its brand awareness and existing network. Boyd is very
familiar with operators in most of its regions but will also use referrals from business brokers to
identify opportunities. The majority of single store acquisitions that Boyd targets are familyowned businesses that require a succession plan or, due to limited scale and scope, are facing
financial duress. This creates an opportunity for Boyd to purchase single store locations at very
attractive prices (at times asset value). Boyd reports an average investment for a new location, be
it a start-up or acquisition, ranging from $400,000 to $600,000 and historical pre-tax adjusted
EBITDA returns of 35%+ (see Exhibit 2; note that Boyd stopped disclosing returns after 2012 for
competitive reasons, but we understand that these rates continue to be similar). Boyd typically
uses cash, debt, seller financing or capital leases to fund the purchase of start-ups or single
locations.
Exhibit 2: Historical ROIC on Single Store Locations
Year
2006
2007
2008
2009
2010
2011
2012
Locations
Acquired
3
2
3
8
8
9
15
Sales (C$ mln)
$8.0
$8.8
$9.0
$14.0
$14.0
$15.0
$17.0
Adjusted
EBITDA (%)
9%
17%
11%
6%
7%
5%
5%
Adjusted
EBITDA (C$ mln)
$0.7
$1.5
$1.0
$0.8
$1.0
$0.8
$0.9
ROIC (%)
32%
182%
90%
18%
32%
16%
10%
Source: Boyd Group Income Fund (2012 Annual Report), Raymond James Ltd.
In both an acquired or start-up scenario, leadership teams from locations within the area take
over the operation (and possibly any staff) and work to integrate it into the greater Boyd network
and processes. As evidenced by the returns above, Boyd has been able to acquire and integrate
single stores with great success. Over the last three years, Boyd has grown by ~50 single store
locations (primarily acquired locations), adding ~$100 mln in revenues for an average annual
growth rate of 8% (see Exhibit 3).
Exhibit 3: Single Store Location Revenue Growth (2010-2014)
25
10%
9%
8%
7%
15
6%
5%
10
4%
Y/Y % Growth
Single Stores Added
20
3%
5
2%
1%
0
0%
2010
2011
2012
New Single Store Locations
2013
2014
Y/Y % Growth (rt-axis)
We view this pillar of Boyd’s growth strategy very positively and believe the company’s local
presence and knowledge provide a competitive advantage when making acquisitions or opening
greenfield locations. We see value in the low capital costs and high returns that Boyd is able to
achieve by injecting its processes, leadership, purchasing power, and relationships into new
locations. We like Boyd’s ability to grow at a rate of 6-10% with incremental returns on capital in
excess of 35%. With ample potential acquisition opportunities and a strong track record to date,
we view single store location start-ups and acquisitions as a solid, sustainable avenue for accretive
growth.
Multi-Store Operations Growth
Boyd’s goal is to be opportunistic for accelerated growth through the acquisition of other multilocation businesses or multi-store operators (MSO). In the last three years, Boyd has achieved an
average growth rate of 25% related to MSO acquisitions (see Exhibit 4). As per the Romans Group,
MSOs make up 16% of the total market and have been rapidly consolidating, with an increasing
presence of private equity (who own Boyd’s main competitors). Please see our Industry section
for details.
Exhibit 4: Multi-Store Operations Acquired Revenue Growth (2010-2014)
40
30%
35
25%
20%
25
20
15%
15
10%
Y/Y % Growth
New MSOs Added
30
10
5%
5
0
0%
2010
2011
2012
2013
New MSO Locations
2014
Y/Y % Growth (rt-axis)
When evaluating MSO opportunities, Boyd typically seeks out “platform” acquisitions that would
allow it to establish a toehold in a new or contiguous market, expand its presence meaningfully in
an existing market, or provide some other strategic benefit such as a complementary line of
business (i.e. glass). With a shortlist of dominant companies in the MSO market, most players are
familiar with one another and quickly become aware when a peer becomes available for sale.
When opportunities do arise, Boyd undergoes a rigorous due diligence process. While deal
multiples are not disclosed, we estimate that historically they have been ~4.5x EBITDA, but have
more recently increased to ~9.0x EBITDA (see Exhibit 5). This estimate is based on our assumption
that acquired businesses have an adjusted EBITDA margin of 8%.
Exhibit 5: Boyd Group Estimated Acquisition Multiples of Multi-Store Operations (Last 5 Years)
Date
Acquired Co.
Price
(mlns,
USD)
Sales
(mlns,
Locations USD)
Sales per
Location
EBITDA
(mlns,
USD)
Jun 2010
True2Form
$18.0
37
$71.0
$1.9
$5.7
8%
3.2x
Jun 2011
Cars Collision
$21.0
28
$65.0
$2.3
$5.2
8%
4.0x
Jan 2012
Master Collision
$11.7
8
$20.0
$2.5
$2.0-2.5*
10-12.5%
4.7x-5.9x*
Jun 2012
Pearl Auto Body
$4.4
6
$13.0
$2.2
$1.0*
8%
4.2x*
Nov 2012
Recovery Room
$7.3
11
$23.0
$2.1
$1.8
8%
4.0x
Nov 2012
Autocrafters
$19.5
14
$32.6
$2.3
$3.6*
10%
5.4x*
Sep 2013
Hansen Collision
$23.6
25
$38.0
$1.5
$3.0
8%
7.8x
Apr 2014
Collision Revision
$32.5
25
$50.0
$2.0
$4.0
8%
8.1x
Jun 2014
Collex Collision
$45.0
16
$46.0
$2.9
$3.7
8%
12.2x
Sep 2014
Champ's Collision
$35.0
7
$37.0
$5.3
$3.0
8%
11.8x
Jan 2015
Craftmaster
$7.4
6
$13.6
$2.3
$1.1
8%
6.8x
Assumed
Implied
EBITDA (%) EV/EBITDA
Average
~4.4x
Average
~9.0x
*EBITDA disclosed and includes synergies
Note: Price, location, and sales are from Boyd; all other figures are RJL estimates
Many of Boyd’s MSO acquisitions have been funded internally, but depending on deal size and
total company leverage (less than 2.0x EBITDA target), Boyd accesses the markets for this type of
growth. MSO acquisitions are reported to be immediately accretive to cash flow and earnings
even after considering dilution (the 2012 acquisition of The Recovery Room was the only
exception with accretion expected within the first year). This claim is backed by some of Boyd’s
return metrics, which shows earnings per unit growth tracking in-line with revenue growth (see
Exhibit 6).
Exhibit 6: Revenue and EBITDA Growth per Unit (2010-2014)
$60
5 Yr Revenue/Unit CAGR: 18%
5 Yr EBITDA/Unit CAGR: 21%
$5.00
$4.50
$50
$4.00
$3.50
$40
$3.00
$30
$2.50
$2.00
$20
$1.50
$1.00
$10
$0.50
$-
$-
2010
2011
Revenue/Unit
2012
2013
2014
EBITDA/Unit (rt-axis)
Integration is a key success factor in each acquisition, particularly since Boyd tries to retain the
operational leadership team of the acquired business. Through over 10 MSO acquisitions in the
last 5 years, Boyd has developed a very extensive “checklist” that takes new shops through a
process that begins pre-acquisition and spans several months post-purchase. Extensive
communication, which includes listening to complaints and concerns and, where appropriate,
retaining existing shop practices, is a major part of the process. So too is thorough identification of
upcoming milestones that must be achieved. While very experienced, management humbly
acknowledges that it continues to learn with every new deal.
As per our Industry section, the collision repair market is rapidly changing and as the industry
evolves, so too does Boyd’s goals and evaluation of its MSO opportunities. The increased presence
of private equity has caused multiples to increase and while Boyd’s management team continues
to see MSO growth prospects, they are committed to maintaining a disciplined acquisition
approach. The implication of this, in our view, is that growth will shift increasingly towards single
location growth, as well as same store sales growth (discussed next).
That said, we do not dismiss potential MSO acquisitions as a catalyst for growth. While we expect
to see fewer of the large-MSO acquisitions per year in the auto collision repair market going
forward, we believe that management is adept at identifying opportunities, including smaller
sized MSOs such as that of Craftmaster (6 locations) earlier this year. We also expect the
management team is able to acquire and expand in other related markets, similar to its
acquisitions of Glass America in 2013 and Netcost Claims Services last year.
These two acquisitions built upon Boyd’s glass business, which before acquiring a 70% interest in
Glass America in 2013, offered fully mobile retail glass services in 12 states and had revenues of
~$20 mln. With the Glass America acquisition, Boyd’s glass business became the second largest US
glass business both in terms of size and footprint (28 states). In the US, it also significantly
improved its position with insurance companies. Last May, Boyd acquired Netcost Claims Services,
which further expanded the third party administration business (TPA). TPAs serve the fleet
management and insurance-funded segments of the auto glass repair industry by providing a
complete, outsourced solution from the time that a claim is made to the time the repair is
finished. The acquisition of Netcost also brought Boyd the benefit of owning and operating its
own call centre (see Exhibit 7).
Exhibit 7: Boyd’s Acquisition of Related Businesses
Date
Revenue at time
of acquisition
(US, mlns)
Acquired Co. Name
Glass Network Division of Globe-Amerada Glass
Renamed Gerber National Glass Services (GNGS)
Jan 2005
$12.5
May 2013
Glass America (70% Controlling Interest)
$43.0
May 2014
Netcost Claims Services
$25.0
The glass industry is highly fragmented with the number one player, Safelite AutoGlass,
dominating the market (~$1 bln in revenues vs. Boyd’s ~$100 mln in a $3-$4 bln market). While
the auto glass repair market is much smaller in size than the auto collision repair market, it is just
one example of the avenues of alternative acquisition growth that Boyd can pursue as part of its
MSO strategy, in our view. Finally, we note that on Boyd’s last conference call, management
stated it is unlikely to consider a higher payout model as it sees ample opportunities for growth—
be it in collision repair or otherwise—over the course of at least the next five years.
Same Store Sales (SSS) Growth & Operational Excellence
The auto collision repair industry is a stable to moderately declining industry due to various
factors including demographics, advancements in technology, fewer registered vehicles, and
lower vehicle usage. On a quarterly basis, growth rates are impacted by cyclical and seasonal
factors such as weather, and macro factors such as employment and gas prices (see Exhibit 8).
Boyd has nonetheless been able to achieve several years of positive same store sales growth as it
wins market share from its peers (see Exhibit 9).
Exhibit 8: Boyd Historical Same Store Sales Growth (1Q05-4Q14)
12.0%
9.0%
6.0%
3.0%
0.0%
-3.0%
-6.0%
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
3Q09
2Q09
1Q09
4Q08
3Q08
2Q08
1Q08
4Q07
3Q07
2Q07
1Q07
4Q06
3Q06
2Q06
1Q06
4Q05
3Q05
2Q05
1Q05
-9.0%
Exhibit 9: Boyd Historical Same Store Sales Growth (2010-2014)
9.0%
Growing national presence and
market share gains;
Favourable weather conditions
in the winter of 2013/14
7.2%
Improved market
conditions and
weather related
activity in Q4.
6.0%
6.0%
4.1%
Soft market
conditions and
weak USD
3.0%
Mild and dry
winter
1.4%
0.3%
0.0%
2010
2011*
2012
2013
2014
*Normalized for a hail storm in 2010, SSS growth would have been 8% in 2011 vs. the 6% shown.
We believe Boyd’s SSS growth and market share gains can be attributed to the increasing usage of
Direct Repair Programs by insurance companies. In a DRP, a collision shop and an auto insurer
enter a contract whereby an insurance company refers its claimants to the collision shops that
participate in its DRP. The advantage of a DRP to an insurer is the ease of dealing with fewer,
higher quality providers, while the advantage to a collision shop is a steady stream of referrals.
Boyd reports that in addition to increasing DRP usage, there is a preference amongst some
insurance carriers to consolidate DRP repair volumes with a fewer number of repair shops
(favouring MSOs). In our view, this trend continues to pose an opportunity for Boyd to win share
with insurance carriers and, in turn, improve its SSS growth.
When selecting its DRP partners, insurers often use a “balanced score card approach” that
emphasizes repair cycle times, amongst other factors (i.e. customer satisfaction ratings, the cost
of repair, convenience, work quality, etc.). Insurers have moved increasingly towards using these
objective metrics (vs. historically relying on existing relationships), thus creating an opportunity
for high performers to increase market share.
WOW Operating Way to Reduce Cycle Times, Increase Same Store Sales Growth
In order to elevate its ranking, Boyd recently increased its focus on reducing its repair cycle times
and increasing its customers satisfaction levels. More specifically, in 2013 Boyd procured a
consulting firm to determine if a 5-7 day repair cycle was possible. For context, the company
estimates the US industry average runs in the range of 10.5-12 days with MSOs, including Boyd,
averaging about 2 days faster than the average.
Working with consultants, Boyd was made aware of several “lost days” of productivity, which are
prevalent in the industry at large (see Exhibit 10). For example, several days were lost due to wait
times between when a customer dropped off his car to when technicians commenced repairs,
between when repairs were completed to customer pick-up, and while parts were on order. Boyd
worked with consultants over the course of 18 months and invested US$3.5 mln to develop a
process called the “WOW Operating Way.” The process includes better scheduling of vehicle
intake, a more thorough assessment of repair needs and mirroring of parts, and scheduling a
committed output date.
Exhibit 10: Industry Average Repair Cycle Times
There remains a great deal of opportunity to
reduce costs a nd i mprove satisfaction by managing
the da ys l ost between vehicle in a nd repairs
s ta rted and repairs completed and vehicle out.
Vehi cle In to Repairs
Started Days Avg
Repairs Started to
Repairs Completed Avg
Driveable
Non-Driveable
Repairs Completed to
Vehi cle Out Days Avg
Los s Report to Vehicle
Out Da ys Avg
0
5
10
15
20
25
30
Source: CCC Information Services, Raymond James Ltd.
The initiative is still in its early stages but the results have been impressive, in our view, with
repair cycle times meaningfully better in shops where the WOW Operating Way has been put in
place. We visited a shop where WOW Operating Way was implemented, and the management
team spoke to previously unmatched improvements. Boyd is “certifying” its shops on a market by
market basis, with about 30 shops (of over 300) currently complete.
To date, the largest obstacle has been employee adoption with some experienced mechanics and
operators (who historically operated quite independently) opposed to change and the imposition
of a specified process. Management believes that consistency of message, commitment to the
program, and adoption at the highest levels will help enable a successful implementation. As well,
demonstrating to all team members that the process would ultimately result in better throughput
and higher returns at the individual level has encouraged adoption.
Boyd has not publically stated its goal for total company implementation, but we expect to hear
updates as the year progresses and will be looking for more measurable goals at year-end. In the
meantime, we expect that the WOW Operating Way will be a potential catalyst for improved SSS
growth.
Expense Management
In addition, we also expect the WOW Operating Way to contribute to expense management, the
final component of Boyd’s strategy. As shown in Exhibit 11, operating expenses make up the
greatest portion of Boyd’s costs (~38% of sales). Very roughly, at the location level, rent, property
taxes, and occupancy costs (i.e. utilities and maintenance) represent 10% of sales and indirect
labour (i.e. management and support) are 13-15%. That translates into a relatively high fixed cost
base of 25% of sales. SSS growth would allow for better asset utilization and higher rates of
incremental return per revenue dollar, and would be the ultimate driver for reducing costs as a
percent of sales.
Exhibit 11: Boyd’s Operating Expenses as % of Sales (Last 10 Years)
41%
40.5%
In 2010 Boyd's opex started to creep up due to increasing acquisition activity. In
addition, changes in mix (i.e. more glass) has contributed to some of the increase.
41%
40%
39.5%
40%
39.1%
39%
38.8%
38.4%
39%
38.4%
37.9%
38%
38.0%
38.0%
2010
2011
38.0%
37.8%
38%
37%
37%
36%
2004
2005
2006
2007
2008
2009
2012
2013
2014
Company Overview
Headquartered in Winnipeg, Manitoba, Boyd Group Income Fund, through its operating company,
Boyd Group Inc. and its subsidiaries, is the largest operator of non-franchised collision repair
centres in North America in terms of number of locations and one of the largest in terms of sales.
Boyd currently operates collision repair centres in 5 Canadian provinces as Boyd Autobody &
Glass, as well as in 17 US states, primarily under the name Gerber Collision & Glass. Recent
acquisitions have resulted in locations under the name Champ’s Collision Centers and
Craftmaster, though these trade names are to be rebranded within the next six to twelve months
as part of the company’s single brand strategy (see Exhibit 12).
Boyd is also a major retail auto glass operator in the US with locations across 28 states under the
trade names Gerber Collision & Glass, Glass America, Auto Glass Services, Auto Glass Authority
and Autoglassonly.com. Finally, Boyd operates a wholesale glass business and third-party
administrator, Gerber National Claims Services (GNCS). GNCS holds contracts with insurance
companies to handle all of their glass claims and then fulfills them with glass providers—both
inside and outside of Boyd’s network. GNCS operates its own call center and offers first notice of
loss, glass and related services. GNCS has 5,500 affiliated service providers and 4,600 affiliated
emergency roadside services providers throughout the US. In total, glass makes up ~10% of Boyd’s
business.
Exhibit 12: Boyd’s Trade Names and Locations
Source: Boyd Group Income Fund
High Usage of Direct Repair Programs (DRP) by Boyd’s Largest Customers
Despite its Canadian roots, the majority of Boyd’s customers are located in the US (~90% of
revenues). The majority of Boyd’s customers, both in Canada and the US, are insurance companies
(~90% of revenues) while the balance of its customer base is made up of individual vehicle
owners, as well as fleet and lease customers (see Exhibit 13).
Exhibit 13: Boyd’s Customers by Country and Type (2014)
Customer /
other, 10%
Canada, 10%
US, 90%
Insurance,
90%
Most of Boyd’s insurance-related revenues are earned through Direct Repair Programs. In a DRP,
a collision shop and an auto insurer enter a contract whereby an insurance company refers its
claimants to the collision shops that participate in its DRP. The advantage of a DRP for an insurer is
the ease of dealing with fewer, higher quality providers, while the advantage to a collision shop is
a steady stream of referrals.
Boyd has relationships with most private insurers in the regions it operates (i.e. the US, and
Canadian markets other than Manitoba and Saskatchewan). Its exposure to insurance companies
is relatively diversified with its top 5 largest customers accounting for 47% of revenues and its
largest customer representing 16% of revenues.
In Saskatchewan, Manitoba, and British Columbia, government-owned insurance companies have
either exclusive or semi-exclusive rights to provide insurance to automobile owners. These
insurers do not typically refer insured car owners to specific collision repair centres. In these
markets, Boyd manages its insurance relationships through active participation in industry
associations. Most of Boyd’s marketing efforts, however, are focused on attracting business from
individual vehicle owners through consumer based advertising.
Company History
The Boyd Group opened its first Boyd Autobody collision repair facility in Winnipeg, Manitoba on
November 1, 1990. Five years later, Boyd had grown to 12 locations in western Canada. By 1997,
The Boyd Group became incorporated with the goal of becoming the leader of the auto body
industry in North America.
After becoming the largest collision repair operator in Canada in 1999, Boyd opened the
company's first US location. In 2004, Boyd expanded its US footprint, acquiring Gerber Collision &
Glass and its 16 locations. In 2005, Boyd acquired the Globe Amerada Glass Network (re-branded
as Gerber National Glass Services), a customer referral network.
These acquisitions, however, proved to be unfortunately timed as business conditions in the US
softened, a key insurer changed its pay rates, and the Canadian dollar suffered a loss in value vs.
the US dollar. At the same time, Boyd was fairly levered (debt-to-EBITDA of ~6.0x). Given the
circumstances, Boyd announced a temporary suspension of its dividend in December 2005.
Thereafter, management redirected its efforts from acquisitions to improving its financial
performance and strengthening its balance sheet. Combined with improved US demand, Boyd’s
actions achieved the desired results and the fund was able to reinstate a monthly dividend of
$0.015 per unit in December 2007.
Exhibit 14: Boyd Timeline (January 2002 to Present)
$60
Boyd Group Income Fund - Share Pricing
$50
25
24
28,29
26
$40
21
$30
27
23
22
20
19
18
$20
15,16, 17
14
11
2
$10
5
3,4
9
6
1
13
12
10
8
7
Number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Description
Boyd reorganized into an income trust structure (2003)
$14 mln bought deal private placement (2004)
Acquisition of The Gerber Group (16 locations; Chicago Area, IL) (2004)
Rebranding of US operations to Gerber Collision & Glass (2004)
Acquisition of Globe Amerada Glass (Referral business; 7,000 partners) (2005)
Distribution reduced to $0.70/unit from $1.14/unit (2005)
Distribution payout suspended (2005)
Distribution payout resumed ($0.15/unit) (2007)
Appointment of Brock Bulbuck as CEO (2010)
Acquisition of True2Form Collision Repair Centers (37 locations) (2010)
Acquisition of Cars Collision Center (28 locations; Midwestern US) (2011)
$14 mln bought deal equity issuance & $7.1 mln secondary bought deal (2011)
Acquisition of Master Collision Repair (8 locations; Tampa Area, Florida) (2012)
Acquisition of Pearl Auto Body (6 locations; Denver Area, Colorado) (2012)
Acquisition of The Recovery Room of Central Florida (11 locations; FL) (2012)
Jan-15
Apr-15
Jul-14
Oct-14
Jan-14
Apr-14
Jul-13
Oct-13
Jan-13
Apr-13
Jul-12
Oct-12
Jan-12
Apr-12
Jul-11
Oct-11
Jan-11
Apr-11
Jul-10
Oct-10
Jan-10
Apr-10
Jul-09
Number
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Oct-09
Jan-09
Apr-09
Jul-08
Oct-08
Jan-08
Apr-08
Jul-07
Oct-07
Jan-07
Apr-07
Jul-06
Oct-06
Jan-06
Apr-06
Jul-05
Oct-05
Jan-05
Apr-05
Jul-04
Oct-04
Jan-04
Apr-04
Jul-03
Oct-03
Jan-03
Apr-03
Jul-02
Oct-02
Jan-02
Apr-02
$0
Description
Acquisition of Autocrafters (14 locations; Northern Florida) (2012)
$34.2 mln bought deal convertible debentures (2012)
Acquisition of Glass America (61 locations, 23 States) (2012)
Acquisition of Hansen Collision and Glass (25 locations; MI, IN) (2013)
$64 mln bought deal equity issuance (2013)
New $100 mln USD Credit Facility (2013)
Finalizes Paint Supplier agreement (2014)
Acquisition of Collision Revision (25 Locations; IL, IN, FL) (2014)
Acquisition of Netcost Claims Services (2014)
Acquisition of Collex Collision Experts (16 locations; MI, FL) (2014)
Acquisition of Champ's Holding Company (7 locations; southeast Louisiana) (2014)
$100 mln bought deal equity and convertible debenture financing (2014)
Appointment of Pat Pathipati as EVP and CFO, succeeding Dan Dott (2015)
Acquisition of Craftmaster Auto Boyd (6 locations, FL) (2015)
In 2010, under the current management team with CEO Brock Bulbuck, Boyd slowly resumed its
acquisition strategy with the acquisition of True2Form Collision Repair Centers and ramped up to
its most active year (in terms of number of locations acquired) in 2014. Boyd continues to acquire
MSOs in 2015 with its most recent acquisition of Craftmaster in January.
Exhibit 15: Boyd’s Acquisition History of Multi-Store Operators (2010-YTD)
177
170
+7
154
104
+6
+16
129
90
183
+25
+25
79
73
65
+8
+11
+14
+6
+28
+37
True2 Form Cars Collision
2010
2011
Master
Collision
Pearl Auto
Body
Recovery
Room
Autocrafters
Hansen
Collision
2012
2013
Collision
Revision
Collex
Collision
2014
Champ's
Collision
Craftmaster
2015
* Excludes acquisition of Glass America in 2013 which added 61 glass locations
Tax-efficient Structure, Steady & Increasing Distribution
Boyd converted to a trust in January of 2003, resulting in a fairly complicated corporate
structure (see Appendix A). Despite the Canadian government’s 2006 ruling to end preferential
tax treatment of income trusts, Boyd did not convert. Effective 2011, all trusts (except qualifying
REITs) have been considered Specified Investment Flow-Through (SIFT) entities that are subject
to tax at a rate approximately equal to corporate income tax rates.
Boyd elected not to convert to a corporation for a few reasons. First, under the SIFT tax rules,
the Canadian government does not tax income generated from sources outside of Canada that
is distributed to unitholders. Consequently, Canadian income trusts that derive their income
from outside of Canada remain tax-exempt at the entity level. As Boyd uses its significant US
operations to fund its distribution, it did not deem any net tax savings by converting to a
corporation. Second, Boyd did not view the cost of conversion (~$500,000 - $1 mln) as a
prudent use of cash.
As shown in Exhibit 16, Boyd has paid its unitholders a steady and growing distribution. Unlike
some of its income trust peers, its payout ratio is quite conservative, averaging ~30% in the last
five years.
Exhibit 16: Annualized Distribution per Unit (C$)
$0.60
$0.50
$0.468
$0.480
$0.492
$0.450
$0.420
$0.40
$0.30
$0.20
$0.180
$0.195
$0.210
$0.225
$0.240
$0.255
$0.270
$0.285
$0.300
$0.315
$0.330
$0.345
$0.360
$0.10
$0.00
Dec 07 - Apr 08 - Jun 08 - Sep 08 - Dec 08 - Apr 09 - Jun 09 - Sep 09 - Dec 09 - Apr 10 - Jun 10 - Sep 10 - Dec 10 Jan 11 - Nov 11 - Nov 12 - Nov 13 - Nov 14 Mar 08 May 08 Aug 08 Nov 08 Mar 09 May 09 Aug 09 Nov 09 Mar 10 May 10 Aug 10 Nov 10
Oct 11 Oct 12 Oct 13 Oct 14 Present
Unit Ownership
Boyd units are held primarily by the general public (58%), but also have a strong institutional
holding (38%). Top institutions include BMO Asset Management, RBC Global Asset Management
and AGF Management. Insiders hold 4% of the company, with the top three holders consisting of:
Eddie Cheskis, CEO of US Glass; Tim O’Day, President and COO of US Operations; and Brock
Bulbuck, President and CEO.
Exhibit 17: Unit Ownership (as of Apr-27-15)
Institutions
Insiders
Public
Total
Units &
Class A Market Value
Shares
(mlns, CAD)
6,340
$327.8
589
$30.5
9,695
$501.2
16,624
$859.5
Individuals/Insiders
Eddie Cheskis, CEO of US Glass
Brock Bulbuck, CEO, President
Timothy O'Day, President & COO US Ops
218
129
53
$11.3
$5.6
$2.8
Top Institutions
BMO Asset Management Inc
RBC Global Asset Management Inc.
AGF Management Limited
812
750
446
$41.9
$38.8
$23.0
Source: Capital IQ, Raymond James Ltd.
Institutions
38%
Public
58%
Insiders 4%
Industry Overview
The auto repair industry can be characterized as a resilient, mature, and highly fragmented
industry that has been undergoing a secular trend of consolidation. Players in this space are
classified by the number of locations within their operation, i.e. single store locations or multistore operators. We discuss the characteristics (i.e. associated revenues, efficiency, etc.) of these
two types of outfits, as well as the size and trends of the industry at large in more detail below.
We note that our discussion is US-focused as this is predominantly where Boyd does business due
to the relative market size. According to the Romans Group, the US represents nearly 34,400
shops and $31.4 bln in revenues, while Canada represents 5,550 shops and $2.8 bln in revenues.
Mature, Slowly Declining Industry…but Also Stable
The auto collision repair industry has experienced a trend of steadily declining auto repair claim
frequency over the past decade due to various factors including: decreasing miles driven; lower
accident frequency and the rise of crash avoidance systems; an aging (more cautious) driving
population; and a millennial demographic that prefers alternative transportation. On balance we
expect this trend to continue but note that short-term aberrations will likely occur due to
economic, cyclical, and seasonal factors.
For example, when economic conditions are weak, people tend to drive less—resulting in fewer
accidents—and have less income to direct towards repairs (or deductibles) when accidents do
occur. The converse is true in times of economic strength with more people driving, more
accidents occurring, and a higher willingness and ability to pay for repairs. Declines in gasoline
prices, intuitively, also increase driving activity leading to higher accident frequency. Additionally,
weather can impact near-term demand with cold and wet weather resulting in more accidents
than mild, dry conditions.
Finally, insurance features can play a role. Higher average deductibles can deter consumers from
filing a claim and as premiums rise, consumers are more likely to opt for a higher deductible (to
achieve a lower premium). Technology, in addition to contributing to lower accident frequency,
also makes a car more expensive to repair (and more likely to be written off).
Despite these factors, we note that overall, the auto collision repair industry is relatively resilient
when compared to related industries such as new automotive sales, for example. This was
demonstrated in the financial crisis where we saw a 4% decline in auto claim severity during
2008/2009 compared to the astounding 35% decline that hit its sister industry (see Exhibit 18).
Exhibit 18: Auto Sales vs. Auto Claims Y/Y % Change
20.00%
10.00%
Auto Sales Y/Y % Change
Auto Claim Severity Y/Y % Change
0.00%
-10.00%
-20.00%
-30.00%
-40.00%
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Insurance Information Institute, Bureau of Economic Analysis, Raymond James Ltd.
Consolidation a Key Dynamic of the Industry
Room for Continued Consolidation
Despite a gradually declining demand environment, in our view there is still room for growth for
certain players in a consolidating industry. Industry expert, the Romans Group, has well
documented the trend of consolidation ongoing in the auto repair industry due to the excess
capacity on the supply side of the equation. While the industry has consolidated over the last
several years driving up the average sales per location (see Exhibit 19), it is still very fragmented
which is demonstrated by the very high number collision repair service providers. They include car
dealerships, independently-owned multi-shop operators, franchises, and smaller family-run
businesses.
Exhibit 19: US Collision Repair Market Size: Independent and Dealer-Operated Locations
90,000
80,000
80,000
70,000
65,000
Avg Sa l es: $670,000
60,000
52,000
50,000
45,000
43,000
Avg Sa l es: $900,000
41,500
40,000
39,500
37,700
36,800
35,200
34,400
30,000
30,000
20,000
10,000
1980
1990
1996
2006
2007
2008
2009
2010
2011
2012
2013
2020E
Source: The Romans Group, Raymond James Ltd.
The market can be segmented by revenue size: operations with greater than $20 mln of revenues,
be it a dealer or MSO; and operations with less than $20 mln, which primarily consists of familyrun independents. The +$20 mln segment represents 15.5% of the total market, but only 4% of
the 34,400 collision repair locations, demonstrating the highly fragmented nature of the industry.
Within the market, dealers represent ~22% (a declining portion) of the total and 4 of the top 10
organizations with +$20 mln in revenues. While Boyd competes with dealers for business, dealers
tend to cater more to the customers that have purchased their vehicles and are less focused on
meeting insurer’s DRP specifications.
Exhibit 20: Market Share by Revenues and Physical Locations
100%
90%
Operations > $20
mln of revenues
make up 15.5% of
the $31.4 bln
collision repair
market but only
4% of the 34,400
locations.
80%
70%
60%
50%
Locations
Smaller Independents
Revenues
Operations > $20 mln revenues
Smaller locations with revenues below $20 mln vary widely in claims revenue per location. On
average, the Romans Group reports they earn $793,529 per location, which is less than one
quarter of the $3.5 mln per location earned by their larger counterparts. This discrepancy
demonstrates the benefits of standardized processes, integration of technology platforms, and
expense reduction through large-scale supply chain management. It also illustrates one of the
several impetuses behind the ongoing trend of consolidation.
Private Equity a Key Player and Competitor to Boyd
The consolidation trend has accelerated more significantly in the last ~4 years. More specifically,
MSO consolidator M&A activity has gone from $300 mln worth of revenue in 2012 to over $2 bln
last year. The presence of private equity has been one of the main factors responsible for this
more recent uptick in activity, with Hellman & Friedman acquiring ABRA and Blackstone acquiring
Service King. Today, the top players in the space—excluding Boyd—are owned by private equity
(see Exhibit 21). These collision repair shops compete directly with Boyd in two respects. First, in
terms of market share, though each have a more established presence in certain regions. And
second, in terms of acquisition growth, with all parties typically at the table for most major MSO
acquisitions.
Exhibit 21: Boyd’s Top Competitors are Owned by Private Equity
2014 - Hellman & Friedman
2011 - Palladium Equity
2006 - Prudential Capital Group
231 Locations
19 States
Caliber
2013 - OMERS Private Equity
2008 - ONCAP
261 Locations
12 States
Service King
2014 - Blackstone Group LP
2012 - The Carlyle Group
235 Locations
21 States
ABRA
DRP Usage by Insurance Companies, a Major Driver of Change
Finally, the “buy-in” of insurers has helped support consolidation in the industry, most directly
through their increasing usage of DRPs. In a DRP, a collision shop and an auto insurer enter a
contract whereby an insurance company refers its claimants to the collision shops that participate
in its DRP. The advantage of a DRP to an insurer is the ease of dealing with fewer, higher quality
providers, while the advantage to a collision shop is a steady stream of referrals.
There has been an increasing usage of DRPs by insurance companies which favour lower cost and
higher quality collision providers. In general, larger, multi-location shops are able to score higher
on most of the key performance indicators set by carriers given their standardized processes,
integration of technology platforms, and expense reduction through large-scale supply chain
management.
Boyd reports that in addition to increasing DRP usage, there is a preference amongst some
insurance carriers to consolidate DRP repair volumes with a fewer number of repair shops (again
favouring MSOs) in order to reduce the number and complexity of contacts necessary to manage
their networks and to achieve a higher, more consistent level of performance. According to the
company, with insurance companies representing a whopping 90% of US auto repair sales, their
impact on consolidation has—and continues to be—meaningful.
Management
Mr. Brock W. Bulbuck, Chief Executive Officer and President
Mr. Bulbuck is Boyd’s President and has been CEO since 2010. Since joining the company in 1993,
he has played a leading role in the development and growth of the business. He is a Chartered
Accountant and is responsible for the affairs of the fund and the company including their strategy,
operations and performance. In addition to serving on the Board of Trustees of the fund, he is also
Chair of the Winnipeg Football Club Board of Directors, a member of the CFL Board of Governors
and a Director of the Pan Am Clinic Foundation.
Mr. Narendra M. Pathipati (Pat), Chief Financial Officer and Executive Vice President
Mr. Pathipati, also known as Pat, serves as the CFO and Executive Vice President of Boyd Group
Income Fund. Mr. Pathipati has also served as the CFO and Executive Vice President for Teichert,
Inc., CFO and Senior Vice President of Continental Tire North America Inc. (alternate name
Continental Tire the Americas, LLC), President and COO of Acadio Corporation, and CFO and
Executive Vice President of ACT Manufacturing Inc. He has a Master’s in Business Administration
from the University of Wisconsin in Madison and a Master’s degree in Industrial Engineering and
Operations Research from the Indian Institute of Technology.
Kevin Comrie, Chief Marketing Officer
Mr. Comrie has been Chief Marketing Officer of The Boyd Group, Inc. since August 2011. Mr.
Comrie oversees marketing leadership for all Boyd Group brands, as well as the necessary
integration of brands resulting from Boyd's growth through acquisition. He served as Vice
President of Marketing & Sales of Boyd in 1997 when he joined the firm.
Tim O’Day, President & Chief Operating Officer, US Operations
Mr. O’Day is Boyd’s President and COO, US Operations. Mr. O’Day joined Gerber Collision & Glass
in February 1998. With Boyd Group’s acquisition of Gerber in 2004, he was appointed COO for
Boyd’s US Operations. Earlier in his career, Mr. O’Day was with Midas International, where he was
promoted to Vice President – Western Division, responsible for a territory that encompassed 500
Midas locations.
Eric Danberg, President & Chief Operating Officer, Canadian Operations
Mr. Danberg has been President and COO of Boyd Autobody & Glass since August 2011.
Previously, Mr. Danberg served as Regional Vice President for the Prairie region.
Financial Analysis & Outlook
Strong Financial Returns to Date
As shown in Exhibit 22, Boyd has demonstrated strong financial returns to date with a 5 year
average ROIC of 16%. Particularly impressive in our view is that growth has been achieved on a
per unit basis (after dilution) with revenue per unit CAGR of 18% and adjusted EBITDA per unit
CAGR of 21%. We know of few companies which have been as acquisitive as Boyd that have also
demonstrated such strong financial returns, as in our experience synergies are not often
immediately realized. This speaks, in our view, to the discipline and effectiveness of
management’s acquisition strategy.
Exhibit 22: Return on Invested Capital (2010-2016E)
25%
5 Year ROIC Average of 16%
20%
15%
10%
5%
0%
2010
2011
2012
2013
2014
2015E
2016E
Exhibit 23: Revenue per Unit and Adjusted EBITDA per Unit (2010-2016E)
5 Yr Revenue/Unit CAGR: 18%
$80
5 Yr EBITDA/Unit CAGR: 21%
$70
$7.00
$6.00
$60
$5.00
$50
$4.00
$40
$3.00
$30
$2.00
$20
$1.00
$10
$-
$-
2010
2011
2012
Revenue/Unit
2013
2014
2015E
2016E
EBITDA/Unit (rt-axis)
Going forward, we expect similar ROIC and double digit growth rates in revenue and EBITDA. To
achieve this, we make the assumptions described below:
MSO & Single Store Location Growth
In 2015, we assume that Boyd will add a total of 30 locations (vs. 64 last year). This includes the six
locations in the MSO acquisition of Craftmaster completed in January. Our assumptions compute
to a single store growth rate of 7.4%, vs. guidance of 6-10%.
In 2016, we assume Boyd will acquire a total of 40 locations to achieve single store sales growth of
9.7%.
In our model, we’ve assumed that all future acquisitions are single store locations with revenues
of $2.6 mln per location (as per guidance) and acquisition costs of ~$700,000, slightly above the
historical reported range of $400,000 to $600,000. We note that potential larger MSO acquisitions
by Boyd would be incremental to our forecasts. As at December 31, 2014, Boyd had $175-$200
mln in “dry powder” to fund acquisitions.
Same Store Sales Growth
We expect to see a continuation of positive SSS growth and are forecasting 4% and 6% SSS growth
in 2015 and 2016, respectively, for US locations (0% for Canada). Supporting our forecasts are
both external and internal factors. At a macro level, a strengthening US economy and the sharp
decline in gasoline prices should support higher driver frequency and the need for collision repair.
More specifically, January 2015 data show a surge in vehicle miles by 4.9% y/y, following a 5.0%
increase in December, the largest increase since March 2004 (see Exhibit 24).
Exhibit 24: Vehicle Miles Driven Accelerates on Declining Gasoline Prices
6%
80%
Vehicle Miles Driven vs. Retail Gasoline Prices
5%
60%
3%
40%
2%
20%
1%
0%
0%
-1%
-20%
-2%
Y/Y Chg. Retail Gasoline Prices
Y/Y % Chg. Vehicle Milesof Travel
4%
-3%
-40%
-4%
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
-60%
Jan-05
-5%
Y/Y % Chg, MONTHLY U.S. Vehicle Miles of Travel
Y/Y % Chg, MONTHLY U.S. Regular All Formulations Retail Gasoline Prices (rt-axis)
Source: Energy Information Administration, US Department of Transportation, Raymond James &
Associates
In addition, we expect some of the benefits of the WOW Operating Way to support continued
gains in market share. The one “wild card” to our forecasts is weather, which we have not
attempted to predict. Lastly, we note that F/X is currently playing in Boyd’s favour. In 2015, we
assume a conversion rate of $1.20 CAD/USD, providing a ~8% lift to the top line. We assume the
same conversion rate in 2016, resulting in no incremental benefit to our numbers. Our respective
revenue forecasts for 2015 and 2016 are $1,077 mln (27% y/y growth) and $1,208 mln (12% y/y).
Note that 2015 revenues should benefit from an active year of acquisitions in 2014.
Forecasting Moderate Margin Expansion; Strong FCF
We’ve assumed small gains in EBITDA margins (resulting from lower operating expenses) as we
expect Boyd to experience lower acquisition expenses and start see the benefits of more fully
integrating prior acquisitions. Our adjusted EBITDA margin forecasts for 2015 and 2016 are 8.2%
and 8.4%, respectively (we believe there could be more upside to margins but prefer to wait for
tangible signs of the benefits of the WOW Operating Way). Our resulting adjusted EBITDA
forecasts are $88 mln (28% y/y) in 2015 and $101 mln (15% y/y) in 2016.
We expect net-debt-to-EBITDA to drop below 1.0x due to strong free cash flow generation. As
shown in Exhibit 25, Boyd has generated strong free cash flow (CFO less capex) per unit for the
last several years, a trend we expect to continue particularly as previous year acquisitions are
integrated.
Exhibit 25: Boyd Free Cash Flow per Unit (2010-2016E)
$4.50
5 Year Cash Flow per Unit CAGR of 22%
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
2010
2011
2012
2013
2014
2015E
2016E
Valuation & Recommendation
We are initiating coverage on Boyd Group Income Fund with an Outperform rating and $60.00
target price. To arrive at our target price we apply a 10.0x multiple to our 2016 adjusted EBITDA
forecast. This is within Boyd’s 4-year average trading multiple and a small discount to its
automotive retail peer group multiple of 10.4x (see Exhibits 26 and 27). Note that Boyd’s track
record of consistent results, continued runway for growth, proven strategy and conservative
balance sheet merit a slight premium to its historical trading averages, in our view. These
attributes are offset somewhat by the company’s smaller market capitalization relative to its
peers. Finally, we believe our valuation multiple is justified when comparing Boyd’s (higher) 5-year
historical growth rate to that of its peers (see Exhibit 28).
Exhibit 26: Boyd Group Automotive Retail Peers
Company Name
Ticker
Fiscal
Year
End
FX
Recent
Price
Shares
O/S
(mln)
Market
Cap.
(mln)
Net
Debt
Ent.
Value
(mln)
2014A
P/E
2015E
2016E
EV/EBITDA
2014A 2015E 2016E
Yield
Net
Debt/
Cap (%)
Advance Auto Parts Inc.
AutoZone, Inc.
LKQ Corp.
O'Reilly Automotive Inc.
Genuine Parts Company
Pep Boys - Manny, Moe & Jack
U.S. Auto Parts Network, Inc.
Uni-Select Inc.
NYSE:AAP
NYSE:AZO
NasDaqGS:LKQ
NasDaqGS:ORLY
NYSE:GPC
NYSE:PBY
NasDaqGS:PRTS
TSX:UNS
12/29
8/25
12/31
12/31
12/31
1/28
12/29
12/31
USD
USD
USD
USD
USD
USD
USD
CAD
$144.50
$693.05
$25.01
$226.26
$91.34
$9.31
$1.73
$43.90
73
33
307
103
154
54
34
21
$10,620
$22,552
$7,668
$23,363
$14,027
$501
$58
$934
$1,554
$4,292
$1,755
$923
$727
$316
$13
$412
$12,174
$26,844
$9,423
$24,286
$14,755
$818
$71
$1,346
18.8
22.0
18.9
n.m.
19.8
n.m.
n.m.
17.7
15.7
17.0
19.3
18.0
26.1
19.1
n.m.
n.m.
19.0
16.7
14.8
17.2
15.3
22.9
17.6
n.m.
n.m.
18.4
15.2
9.9
12.9
11.6
16.8
11.5
6.4
8.9
12.3
11.3
9.1
12.1
10.7
14.5
10.8
8.2
10.8
14.8
11.4
8.3
11.4
9.7
13.4
10.2
7.2
7.1
15.7
10.4
0.2%
2.7%
1.4%
15%
19%
23%
4%
5%
63%
22%
44%
TSX:BYD.UN
12/31
CAD
$51.70
16
$846
$90
$936
26.4
23.8
19.5
13.6
10.6
9.2
0.9%
11%
Estimates for BYD are from Raymond James Ltd.; all other estimates are consensus from Thomson One
Source: Thomson One, Raymond James Ltd.
Exhibit 27: Boyd Historical Forward EV/EBITDA Multiple
Average
High
Low
2011
2012
2013
2014 YTD 2015
6.0x
7.8x
5.1x
6.8x
8.2x
5.6x
9.0x
12.0x
6.8x
10.9x
12.4x
9.4x
10.7x
11.3x
10.3x
4-Yr Avg
8.2x
10.1x
6.7x
Exhibit 28: Boyd vs. Automotive Retail Peers, 5-Year Revenue CAGR
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
Boyd
Genuine Parts Co.
AutoZone
Uni-Select
Advance Auto Parts
U.S. Auto Parts
LKQ Corp.
Pep Boys
Appendix A: Corporate Structure
Source: Boyd Group Income Fund
.
Appendix B: Financial Statements
2012
2013
2014
2015E
2016E
Current Assets
Cash
Accounts Receivables
Income Taxes Recoverable
Inventory
Prepaid Expenses
Total Current Assets
38,976
28,945
1,365
8,666
4,312
82,263
19,304
42,168
1,541
11,431
5,259
79,704
57,510
55,462
884
15,809
9,579
139,244
83,598
72,918
884
12,749
16,588
186,738
110,747
81,801
884
14,294
17,883
225,609
Non Current Assets
Capital Assets
Deferred Income Tax Asset
Goodwill
Intangible Assets
Total Assets
45,897
4,387
49,692
41,271
224,559
63,925
2,389
73,561
60,756
282,271
89,264
2,755
142,755
112,053
487,813
87,396
2,755
155,438
109,401
543,470
86,255
2,755
169,955
106,552
592,868
50,231
4,757
2,006
489
15
58,600
66,232
4,448
3,636
597
15
75,749
96,691
7,645
3,436
671
11
108,454
127,021
5,000
3,436
671
11
136,139
140,686
5,000
3,436
671
11
149,804
44,776
30,327
4,183
2,009
1,072
3,567
5,929
182,955
22,681
30,971
5,952
14,786
20,340
4,874
11,256
11,689
198,297
48,953
81,664
5,339
41,875
23,230
10,702
20,193
11,420
351,830
49,508
81,664
5,339
41,875
23,230
10,702
20,193
11,420
380,070
50,063
81,664
5,339
41,875
23,230
10,702
20,193
11,420
394,290
41,604
224,559
83,974
282,271
135,983
487,813
163,399
543,470
198,577
592,868
86,049
38,976
47,073
2,953
9.2%
1.6x
67,687 147,037 144,947 145,502
19,304
57,510
83,598 110,747
48,383
89,527
61,349
34,755
6,180
8,317
11,200
12,700
12.9%
12.1%
14.8%
26.4%
1.2x
1.3x
0.7x
0.3x
Current Liabilities
Accounts Payable and Accrued Liabilities
Current Portion of Long-term Debt
Current Portion of Obligation Under Capital Lease
Distribution Payable
Dividends Payable to Non-controlling Interest
Total Current Liabilities
Non Current Liabilities
Long-term Debt
Convertible Debt
Obligations Under Capital Leases
Convertible Debenture Conversion Feature
Non-controlling Interest Put Option
Deferred Income Tax Liability
Unit Based Payment Obligation
Exchangeable Class a Common Shares
Total Liabilities
Total Shareholders Equity
Total Liabilities & Shareholders Equity
Total Debt
Cash
Total Net Debt
Interest - from income statement
Interest/total net debt (avg)
Debt / EBITDA
Income Statement
Year ended Dec 31, (000s)
2012
2013
2014
2015E
2016E
2012
2013
Y/Y Change
2014
2015E
2016E
434,424
237,686
196,738
578,260
312,339
265,921
844,104
454,550
389,554
1,077,210
581,694
495,517
1,207,713
652,165
555,548
21.7%
20.7%
22.9%
33.1%
31.4%
35.2%
46.0%
45.5%
46.5%
27.6%
28.0%
27.2%
12.1%
12.1%
12.1%
166,859
45
320,582
6,325
13,405
7,139
37,360
8,317
393,128
(3,574)
407,153
7,200
14,400
8,900
11,200
448,853
46,664
454,113
7,200
14,400
10,000
12,700
498,413
57,135
23.0%
-8.6%
34.6%
-318.0%
42.8%
-100.0%
27.0%
11.5%
16.8%
14.7%
44.0%
2.5%
30.4%
19.4%
171.4%
42.7%
72.3%
13.8%
7.4%
24.7%
0.0%
0.0%
12.4%
4,463
2,953
187,268
9,469
224,520
(99)
(336)
2,331
9,392
4,142
252
27,100
6,180
273,482
(7,561)
46.4%
21.0%
109.2%
46.0%
34.6%
43.7%
34.7%
14.2%
13.4%
11.0%
Income Tax Expense
Current
Deferred
Total Taxes
72
2,336
2,408
149
3,885
4,034
5,744
5,993
11,737
11,199
13,712
-1.9%
67.5%
191.0%
-4.6%
22.4%
Net Income (Loss)
7,061
(11,595)
(15,311)
35,465
43,423
139.4%
-264.2%
32.0%
-331.6%
22.4%
0.56
0.56
(0.89)
(0.89)
(1.00)
(1.00)
2.17
2.17
2.65
2.65
115.3%
115.3%
-258.2%
-258.2%
12.1%
12.1%
-317.1%
-317.1%
22.4%
22.4%
12,535
12,535
13,011
13,011
15,331
15,331
16,359
16,359
16,359
16,359
0.45
0.47
0.48
0.49
0.50
45.3
38.4
0.0
0.5
1.7
0.8
0.7
1.0
25.4
12,423
2.9
29,833
6.9
46.0
38.8
(0.0)
0.4
1.6
0.7
0.0
1.1
4.7
(53.3)
(1,382)
(0.2)
41,499
7.2
22.4%
39.1%
66.2%
28.1%
14.8%
Sales
Cost of Sales
Gross Profit
Operating Expenses
Currency Translation Gain (Loss)
Gain on Sale of Software
Acquisition, Transaction and Process Improvement Costs
Depreciation of PPE
Amortization of Intangible Assets
Write Down of Goodwill and Property, Plant and Equipment
Fair Value Adjustments
Finance Costs
EBT
Basic earnings (loss) per unit
Diluted earnings (loss) per unit
Weighted average number of units outstanding (basic)
Weighted average number of units outstanding (diluted)
Distributions per Unit
Ratios (%)
Gross Profit
Operating Expenses
Currency Translation Gain (Loss)
Acquisition, Transaction and Process Improvement Costs
Depreciation of PPE
Write Down of Goodwill and Property, Plant and Equipment
Finance Costs
Fair Value Adjustments
Taxes
EBIT ($)
EBIT (%)
Adjusted EBITDA
EBITDA (%)
2,274
7,204
3,470
46.2
38.0
0.7
1.6
0.8
46.0
37.8
0.7
1.3
0.8
1.0
4.4
(328.4)
4,743
0.6
68,972
8.2
1.0
24.0
57,864
5.4
88,364
8.2
46.0
37.6
0.6
1.2
0.8
1.1
24.0
69,835
5.8
101,435
8.4
2012
2013
2014
2015E
2016E
7,061
7,204
3,470
(1,230)
19,452
(11,595)
9,392
4,142
(4,842)
25,025
(15,311)
13,405
7,139
2,242
51,219
35,465
14,400
8,900
8,924
67,689
43,423
14,400
10,000
1,944
69,766
(3,185)
(5,941)
(28,259) (101,175)
(435)
(325)
(924)
196
(32,027) (107,043)
(7,500)
(23,963)
(7,500)
(27,428)
(31,463)
(34,928)
5,555
(7,645)
5,555
(5,000)
(5,659)
32,015
1,603
(3,077)
63,480
(6,074)
(14,609)
85,395
(91,748)
54,969
2,235
(3,971)
55,309
(7,366)
91,030
(8,049)
(10,139)
(8,245)
(7,690)
(181)
11,736
18,443
30,179
1,939
(19,672)
38,976
19,304
3,000
38,206
19,304
57,510
26,088
57,510
83,598
27,149
83,598
110,747
2012
2013
2014
2015E
2016E
19,452
25,025
51,219
67,689
69,766
2,799
229
16,424
3,185
435
21,405
5,941
325
44,953
7,500
60,189
7,500
62,266
Total Distributions paid
5,837
6,254
7,525
8,049
8,245
Payout Ratio
35.5%
29.2%
16.7%
13.4%
13.2%
2012
2013
2014
2015E
2016E
Operating Activities
Net income
Depreciation
Changes in Non-cash Working Capital Items
Cash Flow from Operating Activities
Investing Activities
Equipment Purchases and Facility Improvements
Acquisition and Development of Businesses (net of cash)
Software Purchases and Licensing
Senior Managers Unit Loan Program / Other
Cash Flow from Investing Activities
Financing Activities
Increase in Long-term Debt
Repayment of Long-term Debt
Proceeds on Issue of Convertible Debenture
Proceeds on Sale-leaseback Agreement
Repayments of Obligation Under Capital Lease
Fund Units Issued from Treasury
Distribution Paid to Unit Holders
Cash Flow from Financing Activities
Other Adjustments
Foreign Exchange Rate Effect on Cash and Cash Equivalents
Net (decrease) Increase in Cash Position
Cash, Beginning
Cash, End
Payout Analysis - BOYD
Standardized distributable cash
Cash flow from operating activities
Less adjustment for:
Sustaining expenditures on plant, software and equip.
Sustaining expenditures on software
Standardized distributable cash
Cash Flow Analysis - RJL
(2,799)
(36,622)
(229)
(39,550)
8,797
(3,180)
32,336
483
(2,377)
(36,044)
Cash from operating activities
Less: net Capex
FCF (excluding acquisitions & divestitures)
FCF Per Share (excluding acquisitions and divestitures)
19,452
2,699
16,754
1.34
25,025
2,409
22,617
1.74
Acquisitions & divestitures
FCF (including acquisitions & divestitures)
FCF Per Share (including acquisitions and divestitures)
36,622
(19,869)
(1.59)
5,837
0.47
Dividends & Distributions Paid to Unitholders
Dividends & Distributions Paid to Unitholders per share
67,689
7,500
60,189
3.68
0.07
23,963
36,227
2.21
69,766
7,500
62,266
3.81
28,259
(5,643)
(0.43)
51,219
5,739
45,480
2.97
0.06
101,175
(55,695)
(3.63)
6,254
0.48
7,525
0.49
8,049
0.49
8,245
0.50
27,428
34,839
2.13
Risks
Loss of Key Customers
A high percentage of revenues are derived from insurance companies in both government owned
and private insurance markets. The company’s ability to continue to maintain and grow its
business is largely reliant on its ability to maintaining key relationships. The loss of any existing
material DRP relationships could have an adverse effect on Boyd’s operations and business
prospects. While no one customer represents >20% of total sales, the largest 5 non-government
customers represent ~50% of its Boyd’s top line.
Key Supplier Relationships
Boyd has key supplier relationships that have provided, among other things, prepaid rebates.
There can be no assurance that prepaid rebate funding will continue to be available if Boyd
cannot meet the conditions for the funding or that new funding will be available if a supplier is
unable to fulfill its obligations.
Inability to Successfully Integrate Acquisitions
There is no guarantee that Boyd will be able to successfully integrate additional stores. In the
event that any significant acquisition cannot be successfully integrated into current operations or
performs below expectations, the business could be adversely affected.
Economic Downturn
While the current economic outlook continues to improve, particularly in the US, various
geographies where Boyd operates could remain under pressure for an indefinite amount of time.
There can be no assurance that an economic downturn would not negatively affect Boyd’s
operations.
Decline in Number of Insurance Claims
The auto collision repair industry is dependent on the number of accidents which occur and, for
the most part, become repairable insurance claims. There can be no assurance that a material
decline in claims will not occur, which may impair Boyd’s top line and result in an adverse effect
on the company’s operations.
Weather & Seasonality
Changing weather patterns can affect collision repair volumes and introduces an element of
operational and seasonal risk to Boyd’s ability to maintain sales through a given year. Historically,
extremely mild winters and dry weather conditions have had a negative impact on collision repair
sales volumes. In addition, business operations can be subject to seasonal fluctuations stemming
from changes in customer purchasing patterns, general and regional economic downturns,
unemployment rates and weather conditions. These factors can affect Boyd’s ability to fund
ongoing operations.
Competition
The collision repair industry in North America is very competitive. In addition, existing or new
competitors may become significantly larger and have greater financial and marketing resources
than Boyd. Therefore, there is no guarantee that Boyd will be able to maintain or achieve its
desired market share.
Foreign Currency Risk
A significant portion of Boyd’s revenue and cash flows have been, and are expected to continue to
be, in USD. Thus, fluctuations in exchange rates between the CDN dollar and USD may have a
significantly adverse effect on reported financials and, in turn, the company’s ability to fund
future C$ distributions.
Company Citations
Company Name
Advance Auto Parts, Inc.
AutoZone, Inc.
LKQ Corporation
O`Reilly Automotive, Inc.
Ticker
AAP
AZO
LKQ
ORLY
Exchange
NYSE
NYSE
NASDAQ
NASDAQ
Currency
US$
US$
US$
US$
Closing Price
144.50
693.05
25.01
226.26
RJ Rating
1
1
2
1
RJ Entity
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions.
Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.
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outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the
next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4)
Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been
suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable
regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the
company. The previous rating and target price are no longer in effect for this security and should not be relied upon.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might
carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available
investments.
Suitability Categories (SR): Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater
stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small
dividend, and the potential for long-term price appreciation. Aggressive Growth (AG)
Medium or higher risk equities of companies in
fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High
Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or
less predictable revenues, very high risk associated with success, and a substantial risk of principal.
RATING DISTRIBUTIONS
Coverage Universe Rating Distribution*
Investment Banking Distribution
RJL
RJA
RJ LatAm
RJEE
RJL
RJA
RJ LatAm
RJEE
Strong Buy and Outperform (Buy)
65%
54%
50%
47%
46%
24%
0%
0%
Market Perform (Hold)
33%
40%
50%
28%
16%
9%
0%
0%
Underperform (Sell)
2%
6%
0%
25%
0%
0%
0%
0%
* Columns may not add to 100% due to rounding.
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all
companies under research coverage within the next three months.
Company Name
Disclosure
Raymond James Ltd - the analyst and/or associate has viewed the material operations of Boyd Group
Income Fund.
STOCK CHARTS, TARGET PRICES, AND VALUATION METHODOLOGIES
Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management
effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to
change depending on overall economic conditions or industry- or company-specific occurrences.
Target Prices: The information below indicates our target price and rating changes for BYD.UN stock over the past three years.
Valuation Methodology: We value Boyd on a comparative basis to historical and peer EV / EBITDA multiples.
RISK FACTORS
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James
research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact
expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change
investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or
accounting policies or practices could alter the prospective valuation.
Risks - Boyd Group Income Fund
Loss of Key Customers - A high percentage of revenues are derived from insurance companies in both government owned and private
insurance markets. The company’s ability to continue to maintain and grow its business is largely reliant on its ability to maintaining key
relationships. The loss of any existing material DRP relationships could have an adverse effect on Boyd’s operations and business
prospects. While no one customer represents >20% of total sales, the largest 5 non-government customers represent ~50% of its Boyd’s
top line.
Key Supplier Relationships - Boyd has key supplier relationships that have provided, among other things, prepaid rebates. There can be
no assurance that prepaid rebate funding will continue to be available if Boyd cannot meet the conditions for the funding or that new
funding will be available if a supplier is unable to fulfill its obligations.
Inability to Successfully Integrate Acquisitions - There is no guarantee that Boyd will be able to successfully integrate additional stores. In
the event that any significant acquisition cannot be successfully integrated into current operations or performs below expectations, the
business could be adversely affected.
Economic Downturn - While the current economic outlook continues to improve, particularly in the US, various geographies where Boyd
operates could remain under pressure for an indefinite amount of time. There can be no assurance that an economic downturn would
not negatively affect Boyd’s operations.
Decline in Number of Insurance Claims - The auto collision repair industry is dependent on the number of accidents which occur and, for
the most part, become repairable insurance claims. There can be no assurance that a material decline in claims will not occur, which may
impair Boyd’s top line and result in an adverse effect on the company’s operations.
Weather & Seasonality - Changing weather patterns can affect collision repair volumes and introduces an element of operational and
seasonal risk to Boyd’s ability to maintain sales through a given year. Historically, extremely mild winters and dry weather conditions
have had a negative impact on collision repair sales volumes. In addition, business operations can be subject to seasonal fluctuations
stemming from changes in customer purchasing patterns, general and regional economic downturns, unemployment rates and weather
conditions. These factors can affect Boyd’s ability to fund ongoing operations.
Competition - The collision repair industry in North America is very competitive. In addition, existing or new competitors may become
significantly larger and have greater financial and marketing resources than Boyd. Therefore, there is no guarantee that Boyd will be able
to maintain or achieve its desired market share.
Foreign Currency Risk - A significant portion of Boyd’s revenue and cash flows have been, and are expected to continue to be, in USD.
Thus, fluctuations in exchange rates between the CDN dollar and USD may have a significantly adverse effect on reported financials and,
in turn, the company’s ability to fund future C$ distributions.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available for Raymond James at rjcapitalmarkets.com/Disclosures/index and for Raymond James Limited at
www.raymondjames.ca/researchdisclosures.
INTERNATIONAL DISCLOSURES
FOR CLIENTS IN THE UNITED STATES:
Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This
report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security
in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the U.S., including ADRs, may
entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the
U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received
this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report. Please ask
your Financial Advisor for additional details and to determine if a particular security is eligible for purchase in your state.
Raymond James Ltd. is not a U.S. broker‐dealer and therefore is not governed by U.S. laws, rules or regulations applicable to U.S.
broker‐dealers. Consequently, the persons responsible for the content of this publication are not licensed in the U.S. as research analysts
in accordance with applicable rules promulgated by the U.S. Self Regulatory Organizations.
Any U.S. Institutional Investor wishing to effect trades in any security should contact Raymond James (USA) Ltd., a U.S. broker‐dealer
affiliate of Raymond James Ltd.
FOR CLIENTS IN THE UNITED KINGDOM:
For clients of Raymond James & Associates (London Branch) and Raymond James Financial International Limited (RJFI): This document
and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons
who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment
professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended
to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is
therefore not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and
is not intended for use by clients.
For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of
interest management. RJA, RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct
Authority in the United Kingdom.
FOR CLIENTS IN FRANCE:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed,
being persons who are Eligible Counterparties or Professional Clients as described in “Code Monétaire et Financier” and Règlement
Général de l’Autorité des Marchés Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of
persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be
classified as Retail Clients.
For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or
exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
Raymond James Euro Equities is a French Investment Services Provider authorized by the Autorité de contrôle prudentiel et de résolution
and regulated by the Autorité de contrôle prudentiel et de résolution and the Autorité des Marchés Financiers. For non-European
exchanges, Raymond James Euro Equities operates under the name Raymond James International.
Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows:
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by
Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or
commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior
express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose.
This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other
intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and
criminal penalties for copyright infringement.
Additional information is available upon request. This document may not be reprinted without permission.
RJL is a member of the Canadian Investor Protection Fund. ©2015 Raymond James Ltd.
EQUITY RESEARCH
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ENERGY
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Canada Research Boyd Group Income Fund

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BOYD METALS SEES BIG ASS BENEFITS BOYD METALS SEES