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Is a Collision Repair Company a Good Investment?

An upward trending stock chart published in the newspaper Globe & Mail’s ‘Report on Business’ last week was good news for investors in Boyd Group Income Fund, a Winnipeg-based fund the units of which include such brands as Boyd Autobody & Glass in Canada and Gerber Collision & Glass in the United States. These companies are part of Boyd Group, which has grown from one repair shop in Winnipeg established in 1990 to 318 shops today—doubling in size since 2011— and is now one of the largest collision and windshield repair operators in North America.

Reportedly, the Boyd Group is the only publicly traded such group in what is described as the “highly fragmented North American auto repair industry,” collectively valued at more than $30-billion. The Globe & Mail report indicates that all seven analysts who focus on Boyd Group are recommending it as a “buy,” which means they see the potential for more growth and target price increases.

For road safety advocates dreaming of a ‘zero crash future’, however, the climb of the Boyd Group chart is a worrisome snapshot. The underlying analysis is even more disturbing. It would be one thing if it at least stopped after identifying the usual conditions that foster business stability and growth:

First of the classic business analysis reasons is that improving systems making for a strong position to meet the ongoing demands of business ‘feeders’—in this case auto insurers who tend to refer their insureds to the larger, more established repair shop chains. Secondly, cash flow is assured as receivables are a low risk given that about 90 percent of Boyd Group’s business is paid through insurance. Thirdly, this industry appears to be “ripe for consolidation”. Fourthly, in Boyd Group’s case the prospect of 20 percent per year growth “through a combination of same-store sales growth and acquisitions of both single and multi-store operations.” Fifthly, the lower Canadian dollar is also beneficial given that 90 percent of Boyd Group’s revenue is from the US.

But the analysts go on to sketch out the bigger picture—the context—that substantiates their belief that along with these business factors profitability is almost assured. Here it is. The auto collision and repair industry is a safe bet because crash rates, they say, are on the way up. More drivers and more congested roads mean more crashes. Lower gas prices mean more driving and more crashes. Even the weather is now involved. More icy weather in North America supposedly means more crashes. National Bank Financial analyst Trevor Johnson summed it up this way: “People, unfortunately, are always going to be crashing their cars, especially when the weather is bad.” In short, while alerting investors to the need to consider the traditional underlying business factors boding well for Boyd Group, they also tout fundamental factors that will multiply crashes and hence grow the bottom line not just for Boyd Group but also for the industry as a whole.

To put it another way, this same group of analysts outlined the risks for Boyd Group: “trouble finding and integrating new acquisitions”; “weakening relationships with insurance companies”; and “a drop in vehicle collisions.” But not to worry, they say, since all of these risks are low. All of this, however, may be contradicted by the advent of amazing anti-collision technologies that are now standard on luxury vehicles and will be standard on all vehicles in the not too distant future. We’ll see.

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