North America’s best-performing car-parts distributor may not be done climbing after more than doubling in the past year.
Even with that rally, Uni-Select Inc. remains the cheapest stock on a price-earnings basis among 11 peers in a Bloomberg Intelligence index. That suggests the shares of the Canadian company may have room to rise even more.
Investors are showing support for Uni-Select’s decision to sell its U.S. auto-parts distribution unit to an Icahn Enterprises LP unit for about $340 million and use the proceeds to pay down debt. They’re also betting that new Chief Executive Officer Henry Buckley will deliver higher earnings by snapping up smaller companies.
“With a clean balance sheet, Mr. Buckley has a lot of opportunities to put his stamp on the company and make proper acquisitions,” said Irwin Michael, whose Toronto-based I.A. Michael Investment Counsel Ltd. held about 315,000 Uni-Select shares as of June 30. “He can guide the company in a new direction with a fair amount of energy.”
Buckley, who took over Aug. 1 after 11 months as chief operating officer, has wasted little time in making his mark. This week Uni-Select acquired C.B. Hoare Auto Parts Ltd. in Nova Scotia. Earlier this month the company bought the Colorado assets of Painters Supply Co. Terms weren’t made public.
“The acquisition in Denver is an example of building density in a market, and you’ll see us do that elsewhere,” Buckley, 55, said in a telephone interview. Uni-Select will “probably continue building density in the Eastern markets, extend that to California, and extend ourselves little deeper in the northwest and the southwest.”
Uni-Select controls more than 20 percent of the Canadian auto parts and U.S. paint-distribution markets, according to RBC Capital Markets analyst Sara O’Brien. The company distributes car parts in Canada through 21 company-owned stores and more than 1,000 independent wholesalers under banners such as Auto-Plus and Uni-Pro. Its FinishMaster unit sells paint to auto-service shops and collision-repair centers across the U.S.
Uni-Select declined 2.1 percent to C$57.48 by the close of trading in Toronto. The shares had gained 107 percent in the 12 months ended Wednesday, almost five times as much as the 11-member Bloomberg Intelligence North America Automotive Parts & Service Retail Competitive Peers Index.
The shares traded at a price-earnings ratio of 12 as of Wednesday, compared with an average of 23 for the index. Uni-Select’s estimated P/E ratio, based on the next 12 months, is higher at 19, indicating investor optimism.
Uni-Select had $78 million of cash on hand as of June 30 and no debt, according to a company filing. The company, based in the Montreal suburb of Boucherville, also has access to credit facilities of $420 million, of which $405 million is undrawn.
Uni-Select’s balance sheet “is well positioned for M&A,” Michael Glen, an analyst at Laurentian Bank Securities in Montreal, said July 31 in a note to clients.
Buckley said he doesn’t want debt to exceed 2.5 times earnings before interest, taxes, depreciation and amortization, though he added Uni-Select will be willing to “stretch ourselves north of 3, possibly 3.5, for a short period of time if we found the right strategic acquisition.”
Uni-Select had Ebitda of $19 million in the latest quarter.
“Right now we are a little under-leveraged, and we want to use this to help us grow,” Buckley said. “Over time, you’ll see hopefully a reasonably steady diet of tuck-in acquisitions as they come up, both in the FinishMaster business and in the Canadian automotive business. We’ve cultivated larger targets and smaller targets, so there is going to be a combination.”
Another possibility also makes Uni-Select appealing: It may attract a suitor, said Michael, the Toronto investor.
“Perhaps a larger company may want them,” he said. “That’s one of the reasons why the stock has done well.”
Buckley said he’s not worried by the prospect of becoming a target.
“As a public company you are always exposed to that,” he said. “Our job is to make sure we are operating this business in the best manner possible. If being taken out ultimately is a great thing for the shareholder, we will absolutely consider it.”