The Berkshire Model - Why has it not been done more often since Buffett?

[bargainman]

BYD is of much lesser quality than the rest. I used to work for CGX which was a roll up of print shops started by an accountant who used to work at Aurthur Anderson. Very interesting story. Not a high quality business, but one in a mom and pop space. The guy was able to roll up a decent chunk of the industry and became filthy rich off of it.

 

I sold BYD a few months ago for a decent gain, only to watch it move up 15% + dividends. It was sold to raise capital for doom and gloom and due to the fact that the new tax on trusts has eaten through some of the margin of safety. They have tax loss carryforwards but from a valuation perspective these will be eaten through and they will have to pay up 30% of taxes on earnings / divs. They keep buying assets though and will grow through this. I regret selling and may buy back should we see a sell off. I included it because Management owned a significant amount of stock last time I checked.

 

Business Background

 

Boyd Group is a multi-shop operator (MSO) of auto collision repair stores.  They are the largest MSO in Canada and among the largest in North America. They are a roll up business which is something that is very easy to understand. I believe they have a lot of growth options and should do well overtime.

 

Investment Description

 

○ Investment Analysis  - Boyd is a growing rollup organization in a highly fragmented industry. They distribute 27% of their earnings via distributions, have very low leverage, are reasonably priced at 6 - 7 FCF, and grow a bit each year. The only major downside I can see is 30% of their earnings will soon be subject to tax due to changes in the income trust lows.

 

Filter #3 – Does it have management I can trust? - This was written about 9 months ago. Sense then Management has grown on me. I like the way they talk about things and how they report. I also like the acquisitions they are making and the way they are being financed.

 

Management owns 17% of the stock and appears to have built a nice little company. They have been at the company a while and had 1 slight blow up with the Gerber acquisition. They seem to have learned their lesson and now carry very modest debt. I don’t really know Management, but so far I like what I see and they have skin in the game.

 

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/23468

 

http://www.boydgroup.com/i/pdf/2010AGMPresentation.pdf

 

I heard about it on a VIC writeup and liked the idea. Accidents happen and insurance companies like for owners to go to a dealer they know. Everyone knows someone who has taken the insurance company for a ride using their own repair guy (at least I do).

 

I like names like these and tend to collect and watch them (BOBS is another one, but its a fast food Brazilian growth story). The small cap ones get crushed when the market pulls back massively and I will be waiting to buy these owner managers. As long as they stick to their knitting.

 

 

Myth,

 

I was a bit confused by "BYD" since that's also the acronym for "Build your dreams" the chinese company. I take it your entire email is referring to BYD-UN.TO, Boyds right?

 

I was looking here:

 

http://www.boydgroup.com/i/pdf/2010-Sept-CorpPres.pdf

 

on the financial summary page they say:

EBITDA $3.5

Net earnings of 2.1 million

Net earnings per unit of $0.176

Distributable Cash of $2.6 million

Distributable Cash Per Unit (diluted) of $0.217

Payout Ratio: 35.1%

 

I guess I'm confused. How is the Distributable cash higher than earnings, and yet the payout ratio only 35%?  Have you looked at their financials enough to know the answer to this?  There must be some large non cash items bringing down earnings no?  The 6 month figures are similar.  Even compared to EBITDA you're still taking about the distribution being 70% or so of EBITDA...

 

I like the general idea of a company rolling up a fragmented industry with recurring revenues.  It reminds me of the classic in that 'strategy space': SYSCO, and more recently FLO.  I haven't bought either of those, but would like to at the right price.

 

 

[Myth465]

You are correct, this is the other BYD. The Canadian one that no one really knows about or cares about.

 

EBITDA as you know is always higher than earnings, and distributable cash flow is usually in the middle (it too typically doesnt include depreciation, but may include a maintenance number).

 

For DCF, they typically adjust EBITDA and try to figure out how much cash they can pull out of the business. MLPs, REITs, and Trusts tend to give this number. Typically they must reconcile it to a GAAP number but I am not sure what Canada requires now that everyone is going to IFRS.

 

Here is Boyd's definition.

 

For the nine months ended September 30, 2010, net earnings after discontinued operations were $7.1 million or $0.614 per unit (basic) and $0.602 per unit (diluted), compared with net earnings of $6.3 million or $0.538 per unit (basic) and $0.533 per unit (diluted), in the same period a year ago.

 

In the first nine months of 2010, the Fund generated adjusted distributable cash of $11.0 million, which includes adjustments for the collection of additional prepaid rebates, cash flow used in discontinued operations, proceeds on the sale of equipment, and capital lease repayments. The Fund paid distributions of $2.7 million, representing a payout ratio of 24.8% for the period.

 

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Payout ratio is typically a function of distributable cash flow.

 

These things are typically audited or I guess reviewed for consistency to be a bit more precise. and I typically dont project much growth forward when I am paying for a company. The growth usually cancels out noise like the prepaid rebates, a lack of maintenance capex (though thats not much of an issue with this business), and asset sales.