Toronto, Ontario – June 26, 2018 – In this week’s Tuesday Ticker, Boyd Income Fund continue to raise its profile among investors, Axalta shares lagging in 2018, Sherwin-Williams is enjoying the benefits of the Valspar acquisition, and much, much more.
Boyd Group Income Fund
Boyd Group Income Fund is the investment vehicle that holds the Boyd chain of collision repairers centres that has had such success over the past few years. The chain has been a major consolidator in the North American collision repair sector. Units of the Boyd income fund were recommended to investors on a popular investment-focused website this past week. According to the stock expert the Boyd income fund is a bit different than your average income trust. Structuring a company as a trust (rather than a corporation that issues shares) is a legal move that allows has certain benefits. Most companies structured as a trust pay out high distributions. For investors holding units in a trust can be more like holding a bond than a share—value is returned to the investor not as capital gains, but as trust payments, which are taxed at relatively low rates. But Boyd Group has taken a different approach. The company distributes a relatively small monthly payment to unit holders. Instead, profits are held in the company and are being used to fund the rapid acquisition of collision repair centres across North America. That is, the Boyd Income Fund is a little more like a growth stock in that the value to the investor is in the rapid growth of the value of units, and not in the monthly distributions. According to the article this growth-by-acquisition strategy is working very well for Boyd. Growth shows no sign of slowing down. And so while the “monthly distribution” from the trust is “underwhelming” it is the case that fund has been appreciating at an “astounding rate, more than doubling over the last three years and more than quadrupling over the last five years.” That is, the stock analyst says units in the Boyd Income Fund are a great buy and that Boyd is becoming one of the great holdings on the Toronto Stock Exchange these days. That certainly seems to be true. The performance of Boyd has been remarkably consistent over time. The growth has been spectacular. The company seems to be generating far more interest in the investment community. The income fund is being mentioned more often by fund managers. The name is popping up in the investment press now at a fairly regular rate. Which is no surprise considering the amazing appreciation in the value of units in the trust over the past few years. According to this latest piece, Boyd hasn’t yet got the attention it deserves, as it is a fairly small company compared to the size of corporations in, say, the TSX 60 index (a group of 60 largest companies in Canada). But expect investor awareness to increase in the months ahead as the great story at Boyd begins to be told more often. As the stock analyst notes, “With a $2.2 billion market cap, the company hasn’t been getting the attention or analyst coverage that it deserves. At this rate, however, I find it unlikely that the mainstream financial media will be able to continue to ignore this rapidly rising earnings-growth king that’s become a free cash flow cow that’s poised to fare well regardless of what shape the economy’s in.” The analyst goes on to note that the latest quarter was another good one for the company. Results came in above market expectations, revenue surged, and so did same-store sales growth (which was well above what analysts expected).
Axalta
Axalta Coating Systems also received some attention from analysts this past week. However, the news was not as cheery. Analysts at JP Morgan downgraded the stuck, which has slowed in terms growth over the past year. Axalta was famously acquired by Carlyle Group in 2013. It was sold into markets through an initial public offering (IPO) and now exists as a stand alone company, shares of which are publicly traded. Today the company generates a solid $4.5 billion in annual revenue from the sale of coatings for light and commercial vehicles. But according to the analysts, shares in Axalta are, “… likely overvalued, based on its weak organic growth, and unlikely ability to meet the seemingly optimistic current (priced in) expectations of investors.” Shares in Axalta have appreciated 45 percent since the IPO. But that early growth has tempered a bit. This year shares in the company have generally trailed the wider market in terms of returns. The analyst also noted that the probability of an, “… Axalta/Akzo combination ore a Axalta/Nippon combination is low following recent unsuccessful merger actions.” This past spring PPG famously tried to acquire Akzo through a hostile takeover that was successfully thwarted. Shares of Axalta are currently trading around $31.60. Although the JP Morgan analyst downgraded Axalta shares the bank still has a price target of $33 on the stock.
Sherwin-Williams
One company that has been doing well this year is Sherwin-Williams. Shares in the paint maker are now up 17 percent this year. This outperforms the wider industry, which is up about 13.2 percent growth according to an analyst. In a report this past week the analyst noted that the acquisition of auto paint maker Valspar is having good effect. Sherwin-Williams is benefiting from significant synergies this year as a result of the Valspar acquisition. The company has been able to optimize its supply chain. Productivity improvements should also continue to yield benefits in terms of overall margins on the business. According to the report, Sherwin-Williams expects the Valspar acquisition to provide a benefit of $140-$160 million to the company’s bottom line. Efforts to cut operating costs are also helping to improve margins at Sherwin-Williams. No wonder the stock is outperforming this year. Shares in the paint maker are currently trading at about USD $394 per share.
