Thursday, March 23, 2017, 08:28:03 Thursday’s TSX breakouts: This security’s unit price weakness has historically represented a buying opportunity
Featured today is a security whose whose unit price is approximately $1 away from appearing on the negative breakouts list. On Wednesday, the unit price experienced a dramatic pullback after the Fund reported weaker-than-expected fourth-quarter financial results and management guided to a soft first quarter. Unit price weakness has historically represented a buying opportunity. This pullback may represent a buying opportunity for long-term investors. The security I am referred to is Boyd Group Income Fund (BYD.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Fund
Winnipeg-based Boyd Group operates a network of non-franchised collision repair centers across North America, mostly in the U.S., under banners such as Boyd Autobody & Glass, and Gerber Collision & Glass. Boyd also operates auto glass shops across 31 U.S. states under banners such as Glass America, Auto Glass Service, and Auto Glass Authority. Over 90 per cent of Boyd’s revenue stems from the U.S., with the balance from Canada. Revenue, over 90 per cent, are generated largely through insurance carriers such as State Farm Insurance, Allstate, and Geico. The top five insurance customers account for 49 per cent of Boyd’s revenue with the largest customer representing 15 per cent of revenue.
Management remains focused on doubling the size of its business over a five-year period ending in 2020. The company operates in a highly fragmented industry, allowing Boyd to grow through acquisitions. In 2016, the company added 58 locations.
Before the market opened on Wednesday, the Fund reported fourth-quarter financial results that were shy of expectations. The company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $32.6-million, up 14 per cent year-over-year, but below the consensus estimate of $33.2-million. Adjusted earnings per unit came in at 73 cents, up from 62 cents reported last year, below fell short of the Street’s expectations of 79 cents.
Management’s outlook for the first quarter was cautious, stating in the Management’s Discussion and Analysis, “Looking ahead to the first quarter, the company is facing some headwinds that will impact results. The extremely warm and dry winter weather conditions experienced in many parts of the country are now resulting in decreased demand for services in some markets. This, combined with very strong same-store sales in the comparative period of Q1 (first quarter) 2016, is translating into modest same-store sales growth for Q1 2017. The Company is also facing currency headwinds in Q1 2017 in comparison to Q1 2016, which will further impact reported results. Notwithstanding these short-term challenges, our business continues to perform well.”
The unit price dropped 4 per cent on very high volume during Wednesday’s trading session. Over 400,000 units traded, well above the three-month historical daily average trading volume of approximately 63,000 units.