Tuesday Ticker: Palladium peaks, a U.S. firm bids on an Australian banner

By Jeff Sanford

 

Toronto, Ontario — February 6th, 2018 — In this week’s Tuesday Ticker, Blackstone bids for an Australian collision repairer, recyclers benefit from record palladium prices, Fix bulks up its board, and much, much more.

 

American private equity fund, Blackstone, has announced a bid to buy major Australian collision repair centre chain, the AMA Group. According to a report the fund is offering USD $428.9 million. The AMA Group consists of eight collision repair-related companies and has more than 90 locations. A publicly traded company, the shares spiked up from AUS AUS $1.15 a share to $1.35. Shares had been trading as low as AUS $0.85 cents as recently as September. Analysts have called the offer “reasonable” but  “not necessarily a knock-out bid,” according to a report. 

 

The latest earnings report from AMA finds that same-store sales were up 4.7 percent year-over year, while the company’s collision repair shops did about AUS $261.64 million in sales last year. Those figures have been boosted by new revenues from a string of acquisitions through 2016 and 2017. According to the earnings release 2017 earnings were 44.6% over the year previous. Earnings per share were up 116.7% year-over-year. The release notes that the collision repair business model provides a stable investment; revenue in the industry is so regular that owning AMA stock effectively provides an annuity income stream according to the company. AMA Group is part of the ASX 300, an index of the top three hundred companies listed on the Australian Stock Exchange. Another recent acquisition by AMA Group was the spring buy of the outstanding shares in Automotive Solutions Group Limited (ASG). 

 

The company designs and manufactures automotive aftermarket parts, with an emphasis on four-wheel

drive and SUV markets. According to a release, “It supplies components, accessories, vehicle fitment and modification services to the private four-wheel drive and fleet vehicle markets through retail and wholesale distribution networks.” AMA Group has also announced that it will go ahead with three new greenfield shops in the first half of 2018. Investment bank Canaccord Genuity has a ‘buy’ rating on the stock, as well as a price target of AUS $1.31 on the stock. 

 

One of the investors involved in this past summer’s takeover battle around Dutch paintmaker Akzo Nobel has announced that it has, “lost confidence” in the company and will sell out its stake. The shareholder, a UK-based fund named Tweedy Browne, announced in its latest financial report that it had sold its stake in Akzo during the fourth quarter last year after being a shareholder for 25 years. Tweedy Browne had joined other unhappy shareholders in a court case against Akzo Nobel, when the paintmaker refused to discuss a takeover offer presented by American rivals PPG Industries. Tweedy Browne also indicated that it was not happy with Akzo’s failed attempt to buy U.S. coatings company Axalta. Akzo made the offer after refusing the PPG deal. According to Tweedy Brown the price Akzo was offering was too high. An executive with Tweedy Browne was quoted as saying, “This behaviour, coupled with their past unwillingness to engage with PPG, caused us to lose confidence and to take our profits while the stock was elevated.” As it is, Akzo is now working to sell off its Specialty Chemicals Division, which it agreed to do during the takeover battle with PPG.

 

Shares in aluminum producers continue to do well as the price of the commodity continues to rise. New demand from the auto industry is one reason commodity investors are bullish on the metal. But there are other issues driving the price higher this winter. In China concerns about pollution have seen aluminum smelters shutdown. Many assume this will lead to shortages of the metal later this year. As a result prices on the London Metal Exchange (LME) are up about 10% since just December. The most recent increases arrive after a 33% surge in the price of aluminum over the course of 2017. The price bump last year has driven up the share price of aluminum producers such as Alcoa. Many expect the share prices to continue. A source quoted in a recent Reuters article suggests, “Overall, we expect the (Chinese) government to announce further environmentally-motivated shutdowns in 2018 and 2019.”

 

All-in, analysts are now forecasting a global aluminum shortfall in 2018 of 361,500 tonnes. Overall analysts expect the price of a tonne of aluminum to average about $2,097 in 2018. The price surges come at a time that the automotive industry is using more aluminum in auto body panels than ever. The best-selling Ford F-150 moved to an aluminum body a couple years ago. An industry player, Kaiser Aluminum, expects flat-rolled aluminum to grow from 67 pounds per passenger car in 2015 to 85 kilograms in 2025. Major aluminum producer Alcoa announced that earnings were up roughly 25% in 2017 as a result of higher prices. Shares in Alcoa were trading just under $30 a share in July, but spiked to $56.99 by the middle of January. The shares have since fall to about $47 a share. But that’s still a good year for the company. Another name in aluminum is Arconic. The company was split off out of Alcoa and actually makes auto parts. It’s shares rallied this past fall, rising from $23 to $30 a share before falling back to about $27 a share this week.

 

Another commodity that is having a hot moment is Palladium. This will be good news to auto recyclers that can recover this element from catalytic converters. The price of relatively rare Palladium spiked to a record high last month of $1,1380 a tonne on January 15th. That had manufacturers wondering whether to raise prices on catalytic converters according to reports. The record price also likely had recyclers breaking down their cats to recover the palladium inside. It is thought that the record sales of autos over the past few years have driven the bull market in the price of the commodity. According to one report, “Automotive industry and precious metals analysts say the hike in catalytic converter prices will likely hit the secondary aftermarket first – the manufacturers of the units and repair shops that replace them in used vehicles, rather than auto manufacturers.” Some analysts are predicting a price increase of five to ten percent in aftermarket catalytic converters as a result of the price shift. The price of Palladium moved higher than the  platinum in September of last year. This was the first time that has happened since 2001 according to reports. Both platinum and palladium are used in catalytic converters, but platinum is used more often in diesel vehicles. Sales of diesel engine-based cars have been flat since the emississions-rigging scandal of 2015 that found car manufacturers like VW had cheated on emississions tests. Palladium is also used more often in hybrid electric vehicles, and so demand has risen. According to a metals analyst at Ontario-based Sprott Asset Management, “The deficit situation likely won’t go away anytime soon. Existing mines aren’t able to ramp up production to meet demand. Above-ground stockpiles, which are used to plug the supply-demand gap, are quite likely gone by now.”

 

German chemicals maker BASF said it was temporarily shutting down the U.S. plant that makes chemicals for soft foams used in car seats. The shutdown comes as a result of a disruption in the supply of a basic raw material. The company did not say how long production at the Louisiana plant would be down. BASF declared force majeure (the phrase is a legal one that means, basically, “the situation is beyond control of the company,” a declaration that allows BASF to break legal supply contracts without consequence). The raw material in question is carbon monoxide, the supply of which may have been affected by the recent cold spell in the region. An analyst from brokerage Rayment James suggested a competing company that makes the foam, Covestro, is likely to benefit from the shutdown.

 

Canadian collision repair conglomerate Fix Auto announced several new appointments to its board recently. The new additions come with impressive backgrounds as Fix continues to take on a higher profile in corporate Canada. The appointments provide confidence the company will have deep experience on its board as the organization continues to expand globally.

 

One of the appointments, David Marshall, comes with serious finance experience in both government and the private sector. According to a press release Marshall served as assistant auditor general of Canada and a deputy minister in the Federal Government. In the private sector he has has served as vice chairman of CIBC Bank and as a managing director in the Wall Street firm of Bankers Trust New York. He has also served as president and CEO of the Workplace Safety and Insurance Board, a $4 billion Ontario provincial insurance organization. David has also served as Canada’s ambassador to Barbados and the Eastern Caribbean, and is currently an advisor to the Minister of Finance of Ontario.

 

The other new board appointment is Robert Hattem. He has worked in the building materials industry at BMR Group, where he was vice-president of merchandising. He also worked in the pharmaceutical industry at McKesson Canada, where he served as vice-president, sales and marketing. In 2002, he joined UAP as Executive Vice-President of the Heavy Vehicle Parts Division, and in 2004 he was appointed as president and CEO of UAP Inc., where he worked until 2014. Hattem has also served, in his past, as chairman on the boards of organizations like the Automotive Industries Association (AIA) Canada, the Canadian Drug Wholesale Association (CDWA), UAP, and currently serves on the board of Vast-Auto.

 

“As we continue to grow our network and brands, one of our goals is to build a team that is committed to Fix Auto World’s long-term success. David and Robert’s appointments round off our Board’s existing skillset with world-class corporate governance and automotive aftermarket experience, which will serve Fix Auto World well in its current and future projects,” said president and CEO of Fix, Steve Leal.