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Letter to the Editor
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This article originally appeared in the January, 2000 Issue of INSIGHT

January 2000 Investment Update

As promised last month, this month we will review in some detail the current financials of the Boyd Group. Boyd is today the only publicly held company whose major business is that of collision repair.

Headquartered in Winnipeg Manitoba, Boyd went public a couple of years ago and was initially traded on the Winnipeg exchange.

Late this fall Boyd moved its listing to the Toronto Stock Exchange. The Toronto Exchange is Canada’s primary exchange and with this move Boyd achieved not only higher credibility as a corporation, but also a nice initial boost in the price of the stock from around $2.15Cdn to $3.50Cdn now dropping back to around $2.75Cdn.

Boyd currently operates 43 locations that, according to Brock Bulbuck, Boyd’s CFO, are operating at an annualized rate of $66 million Cdn. Of the 43 locations, six are in the U.S., in total accounting for approximately 15 percent of sales activity overall, and future acquisitions will focus on the U.S.

We are presenting this analysis of Boyd’s financials for two reasons. First, our readers may be interested in investing in the company; and secondly, Boyd provides the only public benchmark figures against which both large independents and consolidators can compare themselves.

The June, 1999 issue of INSIGHT provided benchmarks for independents which our research indicates were in a Top 25 percent category of the independents. The Boyd data supplements that based on their actual numbers for 43 shops.

In looking at the dollar numbers on the accompanying chart and within this text, bear in mind that the dollars are Canadian which means they are about $0.68US.

What the analysis shows us is that Boyd’s reported overall gross profit percentage of 46 percent is outstanding while at the same time fixed and variable expenses as a percent of sales exceed 36 percent, which we feel is high.

Fringe benefits for the technicians and other shop employees are included in their below the line number and according to Bulbuck amount to nearly 3 of the 36 percent. In our judgment this amount should be added to the cost of sales, reducing the overall GPM to 43 percent, a point above our Top 25 percent benchmark.

The What If chart shows our best estimate of where Boyd will be when they hit the $100,000,000 Cdn level. At this point, we are suggesting that expenses can be reduced to the 32 percent level and that other below the line items with the exception of the Class E dividend will be proportional to the three quarters of 1999 shown.

If our predictions are at all accurate, earnings, per share based on the expected 12,000,000 shares outstanding should be just under $0.50Cdn.

While Boyd now trades at 29 times earnings, we would expect that at its $100,000,000Cdn Sales level we might expect in one to two years that the stock would trade at a more modest 15 times earnings - thus an indicated target price of $7.00Cdn.

Here in the states, we are expecting one or two IPOs late in 2000: specifically out of these three: ABRA, Caliber or Sterling.

On another take, it’s hard to say anything bad about First Priority this month based on the resurgence of that stock, up to $3.37 per share on Friday, December 17. Will it hold? Who knows, as there are no new press releases so it is not clear just what is driving the volume and the price.

Messages on Yahoo speculate that EDS’s new EDS-AT Kearney Ventures, a new fund with up to $1.5 billion, is an investor.

I called Barry Siegel, president of FPG, for a comment this afternoon after seeing the stock rise one and one-eighths on over 4 million share volume. When asked if he would comment on what was going on, he responded, "No comment," and our brief conversation (not surprisingly) ended.

We also talked to Charlie Hogarty of Keystone this morning to see just what has happened on the aftermarket parts sales side since the State Farm decision and recent announcements from Nationwide and Farmers. Charlie reported that crash parts sales are off in most markets, as might be expected, close to an overall 5 percent level. Some markets are off more, primarily in the southeast, while some midwest and northern markets are actually running ahead of last year for crash parts sales. Some of the other lines such as paint and wheels are up but not enough to offset the way crash parts (approximately 50 percent of Keystone’s volume) have declined. We believe that other distributors with greater reliance on crash parts have been impacted at even greater levels.

I don’t look for a rebound in this stock until mid 2000, when I believe key insurers will figure out how to specify at a minimum bumper covers, head lamps, and perhaps other U.S. non-OE replacement parts with off shore sheet metal held off to 2001 when revised policy language may allow them to reintroduce a higher proven quality product.

-Charles Baker-



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