Safe Dividend From the Automobile Industry

Dividend Aristocrat UNS - Uni-Select

Uni-Select is a leading distributor of automotive refinish, industrial paint as well as automotive aftermath parts.

By geography, the US is its largest market accounting for nearly 50% of revenues, followed by Canada and the UK. Uni-Select owns a large distribution network comprising of independent distributors, more than 440 owned stores and 17 distribution centres.

The company operates through FinishMaster US (47% of revenues), Canadian Automotive Group (29%) and The Parts Alliance UK (24%) business segments. FinishMaster, Inc. is an indirect wholly-owned subsidiary of Uni-Select.

Uni-Select is the proud owner of well known brands like Bumper to Bumper, Auto parts Plus, Finish Master and Parts Alliance. It serves a mix of more than 50,000 customers including both independent and automotive repair shops, wholesalers and independent customers.

Investment Data

Revenue Growth & Market Exposure

Uni-Select enjoys leading market shares in the regions it serves. Its US, Canadian and UK businesses enjoy market shares of 30%, 20% and 7% respectively. The Canadian Automotive group is a leader in the automotive aftermarket parts business, industrial paint and related accessories in Canada, whereas FinishMaster is a national leader in the automotive aftermarket in the U.S.

Uni-Select is growing organically as well as through select acquisitions and greenfield locations. The company entered into the UK market through the acquisition of the country’s second largest automotive aftermath products distributor in 2017. Uni-Select distributes over 2 million replacement parts and 30,000 paint products in the aftermath market. It plays a critical role in the aftermath supply chain market, which offers a huge potential to grow.

Uni-Select serves a diverse set of customers ranging from independent customers to corporate stores, to independent wholesaler, and repair shops. In order to attract and retain consumers, the company is focusing on providing flexible solutions to its customers.

Uni-Select is targeting a sales growth of up to 2.6% in 2018. A strong foothold in the automotive aftermarket, leadership positions in three key geographic markets, and strong cash flows are the company’s competitive strengths. Uni-Select is in a good position to benefit from increasing auto sales and growing demand for aftermath services.

Dividends

Uni-Select has been paying dividends since 1987 and raised it by more than 8% most recently. The company has an annual yield of 1.9% and has compounded its dividend growth by 7.7% in the last three years.

Uni-Select is targeting to achieve an EBITDA margin of 6.75%-7.25%. The company has been successful in generating healthy free cash flows through a combination of balanced profitable growth, improving operational efficiency, transforming and evolving its businesses etc.

Uni-Select enjoys leading positions in the businesses it serves across North America and is in a good position to leverage its position as the US leader in automotive paint and related products. Decades of paint expertise, strong relationships with the leading paint manufacturers and geographic footprint will help in expanding its industrial coatings business. The company continues to drive its operations to generate continued growth and increased profitability, as is evident from the fact that it successfully created a network of 447 stores across its three operational segments, from just 200 back in 2015.

Uni-Select announced its 25/20 cost savings initiative which entails efficiency and optimization across the company, for minimum recurring annualized savings totalling $25 million by the year 2020. As a part of its earlier 20/20 initiative, the company has already realized $12 million in recurring cost savings at the end of the latest third quarter.

A very low payout ratio of 25% and leading market share should help in future dividend growth in the high single digit range.

Competition

Uni Select Inc. operates in highly competitive markets. It competes with AutoZone, AutoCanada, Magna International TSE:MG, The Parts Authority, Automotive Distribution Network etc. The company competes with many smaller players as well. However, Uni-Select enjoys an edge over its competition given its focused investment in people, systems and technology. A large geographic footprint, leading market shares, reputed brands, and an extensive distribution network form a deep moat around Uni-Select’s business.

Bottom Line

As a leading distributor of automotive parts, Uni-Select is bound to benefit from increasing automobile sales. Uni-Select is targeting to acquire companies to expand its geographic coverage as well as build density in key markets. Rigorous efforts focusing on new customer sales initiatives, transitioning to company-owned stores, optimization of network and expanding into the industrial coating business should drive organic sales growth in future.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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