Ccord Jacks ACQ
AutoCanada Inc. (ACQ : TSX : C$73.48) - Buy - Target:C$82.00 Canadian market continues to open up; ACQ announces BMW acquisition; reiterating BUY rating; increasing target to C$82.00 (from C$79.00) Investment recommendation We are reiterating our BUY rating and increasing our target to C$82.00 (from C$79.00) as the Canadian market continues to open up to public ownership. Investment highlights AutoCanada announced the acquisition of Automobile Cantec Inc., which operates a BMW and MINI dealership, located in Montreal, Quebec. We view this announcement very favourably as this represents yet another OEM opening up to public ownership in Canada. We estimate that this acquisition will add ~$2.0 million to EBITDA; however, we had already accounted for a potential acquisition in our estimates. Importantly, since May 2012, GM, Kia, Volkswagen, Audi, and now BMW have all changed their views on public ownership in Canada and now embrace AutoCanada as a partner. This has opened up another potential 887 acquisition opportunities for AutoCanada, or ~25% of the new car dealer market in Canada. While we acknowledge that not all are for sale, it does point to a growing acquisition pipeline. We believe that over time, other OEM's (namely Ford, Toyota, and Honda) will eventually turn to AutoCanada to aid them in succession planning with their current respective franchisees. Valuation Our C$82.00 target price represents 24.0x our 2015E EPS of $3.42, as we have tweaked upwards our multiple by 1.0 point to reflect the new OEM acquisition potential. Given our expectation of robust 38% earnings growth YoY in 2015, and an increasingly healthy acquisition pipeline, we continue to rate the shares a BUY.