One of our longest standing BUY recommendations in our portfolio, Boyd Group Income Fund (BYD.UN:TSX), can serve as an excellent example of the type of stock we love to uncover for our clients. It is the type of winner that allows an investor to make other mistakes (and we do) and still produce strong returns in a focused portfolio. We recommended Boyd in November, 2008 at $2.30 and today it trades in the $95.00 range (it has paid us over $3.00 in dividends) and returned over 4,250%.
For the anatomy of this great stock selection we get into our time machine and set the mood of the market at the time. The year was 2008, the month was November and markets were in panic mode. The credit crisis and market meltdown were in full swing and investors were selling shares indiscriminately – like they were going out of style.
There was definitely blood in the streets, but the carnage was fresh and we had not likely reached full capitulation.
Despite the fact that prices had fallen precipitously and assets appeared on sale there was a lack of recommendations coming forward from Bay Street as analysts and investors were afraid to catch falling knives. From the value investor perspective, we were like kids in a candy store.
Great companies were on sale. And while it tested our stones (trust us it did), we started increasing the frequency and volume of our recommendations at this time. Over the next six-months we recommended in the range of 15 stocks. To give an idea of how rare this is, over the first 7-months of 2017 we have added only two stocks to our Canadian Growth Stock Focus BUY Portfolio.
For our first buy we were looking for a stock with recession resistant qualities. After all, we were in the midst of a potential great recession that was uncharted territory and destined to last for quite some time. We were looking for a simple business that would not easily go away and could potentially grow, even in tough times.
Enter the Boyd Group Income Fund (BYD.UN:TSX). The company was the largest operator of automotive collision repair service centres in Canada and was among the largest multi-site collision repair companies in North America. Recession or not, people tend to fix their vehicles as a means of getting from A to B is often essential in keeping gainful employment. Despite this, Boyd had basically zero following on Bay Street and the company’s total market cap was in the $25 million range. The company posted revenues in its last quarter alone of over $50 million.
Boyd had recently undergone a turnaround. In fact, since the start of 2007, the company had managed to cut its total debt outstanding in half, reinstate regular cash distributions, increase same store sales, and grow cash flow significantly. Organic growth was solid and the company had embarked on a U.S. acquisition plan that appeared to chart a path towards sustainable long-term growth. The management team owned a significant stake in the business, adding to the appeal.
Partly due to the crisis environment and partly due to its complete lack of analyst coverage (a perfect stock for us), the company was trading with very attractive valuations. The following is an excerpt from our 2008 Buy Report.
“Boyd’s PE multiple based on continued operations is currently south of 4, its price-to-sales is a paltry 0.14, and its EV/EBITDA is 3.32. Based on that, the company’s continued positive outlook, and the fact we like to get paid for holding a security in the current market, we will initiate coverage on Boyd with a BUY recommendation and adding the company to our FOCUS BUY list.”
Monthly distributions and dividends of $0.015 were reinstated commencing December 2007. Shareholder distributions increased to $0.01625 commencing April 2008, subsequently increased to $0.0175 commencing July 2008, increased to $0.01875 commencing October 2008, and finally increased to $0.02 commencing January 2009. At the time, this annualized distribution of $0.24 represented a very conservative annualized payout ratio estimated to be in the 25% range (many funds payout between 80-95%), a sustainable level that allowed for continued balance sheet improvement.
Over the next 9-plus years Boyd has delivered on its growth plans and then some. With each quarterly earnings beat, our comfort level with the management team and company grew. The stock has been recommended at ever increasing prices no less than 25 times in separate reports from KeyStone and it has maintained its position in our Focus BUY Portfolio. It is currently the longest standing buy recommendation.
Again, we recommended Boyd in November 2008 at $2.30 and today it trades at over $95.00 range (it has paid us over $3.00 in dividends) and returned over 4,250%.
Boyd’s market cap has risen from $25 million to $1.75 billion and the company has expanded from roughly 75 locations to 475 locations today. Despite the astonishing rate of growth, the company’s share count has only increased from 12 million to 18 million.
Despite being by far one of the best performing stocks on the entire TSX over the past decade, Reuters only tracks 12 analysts covering the stock. And this is a “surge” from between 0 to 3 analysts over the first 5-years we were recommending the stock.
The lack of coverage outlines the Street’s lack of interest in companies that are not serial share issuers – they just do not make them enough money. This lack of coverage has been a golden opportunity for our clients and produced one of our best recommendation of all time in a stock that is anything but sexy, but produces some of the sexiest returns one can imagine.