Uni-Select – An Automotive Investment Option

Dividend Aristocrat UNS - Uni-SelectWhile many of the vehicle manufacturers pay a dividend, betting on a particular auto manufacturer can be difficult. We can never tell which one will have a scandal or a recall affecting the stock price negatively. Another way to invest in the automotive industry is to review the secondary market generated by the automotive industry such as parts and repair.

Another way to invest in the automotive industry is to review the secondary market generated by the automotive industry such as parts and repair. Magna International TSE:MGNYSE:MGA  is one of the options and Uni-Select is another option.

UNS Business Summary

Founded in 1968, Uni-Select TSE:UNS is a leader in the distribution of automotive aftermarket parts, tools & equipment, industrial paint and related products. UNS has a distribution network of independent distributors and corporate stores spanning all of Canada and 33 US states. It delivers essential products to meet the needs of its independent wholesaler, repair, and collision repair shop customers quickly and efficiently. Uni-Select also operates over 14 distribution centers and over 255 corporate stores that serve over 1,155 independent wholesalers on a daily or bi-weekly basis. Tens of thousands of repair and collision repair shops are supplied by their network.

Over the past decades, Uni-Select has grown with acquisitions. In 2011, Uni-Select acquired FinishMaster Inc. In doing so, it became the largest independent paint, coatings, and related accessories distributor in North America.

UNS - Brands
Source: Uni-Select Investor Information February 2017

In the repair business, it’s important to be local and Uni-Select understands that with their distribution network and repair centers.

UNS - Distribution Network

By The Numbers

UNS Revenue

While Uni-Select has a 12% growth quarter over quarter as stated in their conference call presentation, the revenue growth (EPS) is not consistent year after year as you can see in the dividend section. However, one of their study highlighting car owners own their car for longer should benefit them when it comes to repairing their car although one could argue that repair is a factor of being on the road. Are the studies showing more cars on the road? What will the impact of self-driving cars be? (Too far into the future maybe …)

UNS - Revenue
Source: UNS Q1 2017 Conference Call

Their growth has been fueled by acquisitions in key locations with key products (or services) and Uni-Select has recently agreed to acquire 100% of PA Topco Limited doing business as The Parts Alliance, a UK leader in the distribution of automotive aftermarket parts, for a transaction value of approximately £205 million (US$265 million), on a cash free debt free basis. The acquisition is providing UNS a solid foothold in the UK to grow their business.

UNS - UK Acquisition
Source: The Parts Alliance Acquisition Presentation

UNS Dividend Summary

Uni-Select is a Canadian Dividend Aristocrats with only 3 consecutive years of dividend increases. How is that so you may be thinking? After 2008, the S&P decided to allow for one year of no dividend increase for the Canadian Dividend Aristocrats and Uni-Select benefits from that. With that said, UNS has been stepping up their dividend increases.

  • 3 year average of 8.82%
  • 5 year average of 6.90%
  • 10 year average of 5.83%

I like to look at the growth of dividends against the EPS has it shows if the earnings from the company are keeping up with the dividends. If it’s not, then it’s a warning sign to look further into that. UNS has a nice dividend line but the EPS was a bit erratic for around 5 years until the last couple of years. It appears to be in control but 2 years is not much but if we draw a line from 2006 to 2016, the trajectory is what we want and there would be room for accelerate dividend growth.

UNS - Dividend vs EPS
Source: Financial Reports

The trends in the graph above are not consistent aside from the dividend but it seems the company is making the right acquisitions to fuel growth.

  • 3 year average of 14.29%
  • 5 year average of 26.62%
  • 10 year average of 23.56%

Investment Philosophy #1: BUSINESS QUALITY

The auto market is here to stay and there is money to be made but aside from the fuel and insurance companies, there is no other subscription like revenue model. There is a market for new cars as long as the economy do well which is good for Magna International who helps the auto manufacturer build cars. When it comes to Uni-Select, it’s a little more challenging as you are dependent on repairs or the need to install aftermarket parts. Based on my business quality metrics, Uni-Select does not have a moat which reduces the quality of business.

Investing Opportunity Score: 70%

Based on my Opportunity Score formula, UNS (TSE:UNS) has a score of 70% (the higher the better) for being an investing opportunity. Above 60% is a good range to pay attention to an opportunity. Anything around 80% will have a short window of opportunity unless the stock got beaten down for other qualitative reasons.

I like what Uni-Select has been able to achieve through acquisition. Their company is global with local markets and that’s what makes it challenging to have a moat with organic growth. In the end, I prefer Magna International for the auto sector.


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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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