An income trust that acts like a growth stock

Boyd Group Income Fund yields the lowest percentage distribution of the 50 most widely-covered income trusts surveyed by Investor’s Digest of Canada. But AltaCorp Capital analysts that follow the trust say they expect it to continue to grow by more than 15 per cent per year over the years ahead.

growth_stockBoyd Group Income Fund (TSX—BYD.UN), the Winnipeg-based consumer income trust in the automotive collision and glass repair business, has never been shy about pursuing mergers and acquisitions.

The company hit the acquisition trail yet again with its recent $193.6 million acquisition of Assured Automotive Inc., which is the biggest operator of non-franchised collision repair facilities nationally.

“This most recent transaction highlights Boyd’s position as one of the leading consolidators in the North American automotive repair space,” say AltaCorp Capital analysts Chris Murray and Lovish Gupta. “We believe the addition of Assured including the introduction of a new sales channel as well as further geographic expansion and additional store growth are supportive for increased earnings and share price appreciation.”

Boyd, who highlight that the deal will be accretive to earnings per share as well as cash flow per share right after the deal closes, funded the transaction with $146.1 million in cash that it obtained from its credit facility and $47.5 million in its units.

Assured Automotive operates 68 centres and, over the last four years, has seen revenue grow at a 31.9 per cent compound annual growth rate. For the year concluded Mar. 31, 2017, Assured Automotive reported revenue of $150 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $18.2 million.

“The company also announced it increased its existing revolving credit facility to US$300 million and extended the maturity to May 2022,” say Messrs. Murray and Gupta. “Excluding convertible debentures, the ratio of net debt to adjusted EBITDA—on a pro forma basis—is expected to increase to 1.50 times from 0.89 times back in the first quarter of 2017.”

The analysts, who keep their ‘outperform’ recommendation and boost their 12-month target unit price to $110 from $100, hike their projections for adjusted EBITDA by 7.3 per cent to $155.5 million this year and by 17.3 per cent to $200.4 million in 2018.

Messrs. Murray and Gupta believe that Boyd will continue to expand by more than 15 per cent per year over the years ahead, which should allow Boyd to accomplish its goal of doubling in size by 2020.

This is an edited version of an article that was originally published for subscribers in the July 7, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in  Investor’s Digest of Canada.

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