On the surface results not that bad is decline in AB secular - OK, so new dealership revenue and ebitda helped to mask the decline in same store sales. But even if you strip out new store revs and profit, it sounds like the previous year quarter was a worse that this one.
The dividend cut I suppose would be viewed favorably by some - an OK move for a growth company; but for others it would signal management fears further declines. I sold part of my position yeserday, but still have most of it.
The key question here, is whether the decline in oil is a permanent secular situation, i.e. the early innings in a major shift from fossil fuel to batery powered cars, or is it just a taste of things to come. Analysts probably say there will be no meaningful shift for a long time, etc, but already Tesla has presold 300K of its cheaper model 3 that it will start delivering next year (in theory). In fact they say they want to ship 500K model 3s next year. This is not an insifnificant number when the global car market is 70 million cars a year. That's close to 1%, and the big auto makers are pumping billions into electric vehicle R&D. THis will dent demand for oil sooner than expected is my guess, in fact investor sentiment is already aware if not affected by this factor.
According to the chairman of CNQ, "lower oil prices are “the new normal."
What this means for Alberta may simply be the end of the oil sands, which needs 50+ dollar oil to survive. So if you think aboujt the next 10 years:
- Electric cars will become cheaper and more efficient within the next 3-5 years
- People like myself will make the shift when a more reliable recharge system and cheaper cars are the norm, which looks like it could be as little as 2 or 3 years away, Tesla is moving quickly in this direction. I expect to be driving a tesla in 2018 or 19
- If Tesla in 3 years can sell close to 1% of all vehicles sold in the world, what can tesla + all the other car makers sell? 3%, 5%. In 10 years, maybe 20%?
- Alas, Alberta's future is greatly tied to the oil price, and I fear that even as oil demand is increasing apparently, countries like iran and saudi turn on the taps and just don't care. Iran will be happy with 40, saudi will manage, north america cant make it at 40.
So if this secular decline in oil is confirmed, where does this leave ACQ? Well, without much of an economy, i can't see how delaerships in the oil provinces can do well long term.
In the short term, you have the wild fire situation which may lead to a few insurance replacements, not sure if acq would get that business, but you also have another 30K people displaced who cant work at the oils sands which have suspended operations. double whammy
So the 2 questions are: what can acq do to offset the long term decline in the Alberta economy (tough one), and how will the shift from gas to electric affect acq and all other traditional dealerships? Tesla is the only big independant contender right now, and they will sell through their own locations, so ACQ better position itself to have a lot of dealerships of the makers who have or will have the most desired non-tesla electric vehicles
- Gross profit from existing and new dealerships increased by 6.0%, or $6.3 million, to $111.7 million in the first quarter of 2016 from $105.4 million in the same quarter in 2015.
- Same store revenue decreased by 3.1% in the first quarter of 2016, compared to the same quarter in 2015. Same store gross profit decreased by 5.5% in the first quarter of 2016, compared to the same quarter in 2015.