AutoCanada Stock Pitch - ACIIC Competition
Content
AUTO CANADA - ACQ
Team B-ACIIC
Please note that none of the authors in this
pitch have any long or short positions on ACQ
CONTACT INFORMATION
Natalia Lazarevic – [email protected]
Christian Avolio – [email protected]
Darren Viegas – [email protected]
Ruohan Chen – [email protected]
Joshua Rho – [email protected]
Andre Luk – [email protected]
Ben Liu – [email protected]
Michael Saskin – [email protected]
Krishna Aggarwal – [email protected]
AUTO CANADA - COMPANY OVERVIEW
AUTO CANADA Overview
OVERVIEW
One of the largest multi-location dealership groups and the only
Since prices
bottomed
out in
mid-June, spot
uraniumheadquartered
has rebounded %
publicly
traded
Canadian
automobile
dealership,
in
to
Edmonton
it currently services customers across eight provinces
Revenue is derived from four operations, new vehicle sales, used
vehicle sales, financing and insurance, and parts and servicing
Sold approximately 36,000 vehicles and processed over 364,000
service and repair orders
Operates 48 franchised dealerships in eight provinces and has
over 3,600 employees
Represents eight vehicle original equipment manufacturers
(“OEMs”) and 19 brands with dealerships based primarily in
Western Canada
Parts and
Servicing
Original
Equipment
Manufacturer
(OEM)
NUMBER OF DEALERSHIPS AT YEAR END
4.1%
4.0%
4.2%
$80
$70
3.5%
3.4%
3.0%
$50
$40
2.9%
51-53
31
22
22
23
24
25
2008
2009
2010
2011
2012
$30
2.4%
2.0%
48
130% increase in
dealerships since 2008
$60
2.5%
Consumer
Financing and
Insurance
EBITDA PROFILE
3.0%
AUTO CANADA
$20
1.9%
$10
1.5%
$0
2008
2009
2010
2011
EBITDA
2012
Margin
2013
LTM
2013
Current
By May
2015
The only publicly trade automotive dealership group in Canada
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA - COMPANY OVERVIEW
AUTO CANADA Revenue Breakdown
GEOGRAPHIC BREAKDOWN
BUSINESS SEGMENTS
SAME STORE GROSS PROFIT GROWTH
17.5%
Based on dealerships
owned for at least 2 years
13.9%
10.9%
8.0%
4.1%
-2.8%
2008
-7.8%
2009
2011
2010
2011
2012
2013
LTM
New Vehicles
2012
Used Vehicles
2013
Parts & Servicing
LTM
Finance & Insurance
ACQ is geographically diversified, and it’s business founded on four revenue streams
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – TRADING HISTORY
Trading History
PRICE VOLUME ANALYSIS
SUMMARY STATISTICS
Volume
1,200
$100
$90
1,000
Appointment of
CFO
$80
Capitalization
Share Price
($)
Shares
($)
Market Cap
Add: Debt
($)
Add: Preferred Shares
Add: Minority Interest
Less: Cash
($)
Less: Investments
($)
Enterprise Value
41.6
24.5 M
960.4
119.9
N/A
N/A
35M
N/A
1.6B
$70
800
Market Data
Closing of Equity
Financing and
Secondary
Offering
$60
600
$50
$40
Sales surge 12.6%
in September
400
$30
$20
200
$10
3/13/2014
52 Week Low
52 Week High
Avg Vol
5/13/2014
7/13/2014
9/13/2014
11/13/2014
1/13/2015
91.72
31.32
152,368
Trading Multiples
EV/Revenue
EV/EBITDA
P/E
P/B
P/Sales
Analysts Estimates
Annual EPS
Quarterly EPS
Mean Recommendation
PEG Ratio
19.9X
19.5x
2.46x
.47x
2.3
0.56
2
2.3
$0
3/13/2015
ACQ trading in lockstep with oil in recent months
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – RECENT EVENTS
Recent Events
OVERVIEW
Bridges Chevrolet Acquisition
in North Battleford
BMW Laval & MINI Laval
Acquisition in Laval
Toronto Dodge Chrysler
Acquisition in Toronto
Lakewood Chevrolet
Acquisition in Edmonton
Tower Chrysler Acquisition in
Calgary
November 17, 2014: Announced approval from GM Canada to purchase an 80% non-voting equity interest
in Bridges Chevrolet Buick GMC located in North Battleford, Saskatchewan
Originally founded in 1976
The franchise retailed 396 new and 387 used vehicles in 2013
November 5, 2014: Announced approval from BMW Canada to purchase an 85% interest in the assets
(including land and building) of Auto Boulevard St. Martin Inc. in Laval, Quebec
Originally founded in 1973
The franchises retailed 2,208 new and 680 used vehicles in 2013
October 20, 2014: Announced approval from Chrysler Canada to purchase Toronto Dodge Chrysler
located in Toronto, Ontario
Originally founded over 25 years ago
The franchise retailed 615 new and 199 used vehicles in 2013
August 19, 2014: Announced approval from General Motors of Canada to purchase a 75% non-voting
equity interest in the shares of Lakewood Chevrolet located in Edmonton, Alberta
Originally founded in 1980
The franchise retailed 659 new and 343 used vehicles in 2013
August 13, 2014: Announced approval from Chrysler Canada to purchase Tower Chrysler located in
Calgary, Alberta
Originally founded over 44 years ago
The franchise retailed 889 new and 380 used vehicles in 2013
Consistent demand growth and acquisitions will provide tailwinds for Auto Canada’s growth
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – RECENT EVENTS
Recent Events Cont’d
OVERVIEW
Closing of Equity Financing
and Secondary Offering
Completion of Calgary Dealer
Group Acquisition
Dodge City Acquisition in
Saskatoon
Increased Acquisition
Guidance
The company issued 2,565,000 common shares from treasury for gross proceeds of $200 million
CAG and its subsidiaries sold, with the full exercise of the over-allotment option, an aggregate of
2,598,500 common shares for gross proceeds of $203 million
July 4, 2014: Confirmed completion of the acquisition of six dealerships and one exclusive right to build and
operate a Nissan motor vehicle dealership on a designated property in Southeast Calgary, from the Hyatt
Automotive Group Inc. or its affiliates.
The Hyatt Dealerships are known by their trade names: Hyatt Mitsubishi, Fish Creek Nissan,
Calgary Hyundai, Northland Volkswagen, Hyatt Infiniti and Crowfoot Hyundai.
June 18, 2014: Announced approval from Chrysler Canada to purchase Dodge City located in Saskatoon,
Saskatchewan
Originally founded over 45 years ago
The franchise retailed 1,056 new and 841 used vehicles in 2013
June 5, 2014: Announced an upward revision to acquisition guidance to complete an additional 8 to 10
dealership acquisitions over the next 12 months
This is in addition to the purchase agreements for eight dealerships announced April 28,2014
June 5, 2014: Announced extension of Pat Priestner’s employment agreement to May 31, 2019
Appointment of CFO
Extension of Chairman and
CEO Employment Agreement
July 11, 2014: Announced closing of equity financing and secondary offering
Previous agreement expired in 2017
June 5, 2014: Appointment of Christopher Burrows as CFO, effective September 1, 2014
Previously VP and CFO of K-Bro Linen Systems and VP Finance, Administration & Tax with Stuart
Olson Construction Group
Consistent demand growth and acquisitions will provide tailwinds for Auto Canada’s growth
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – MARKET CONDITIONS
Market Conditions
Public ownership evolving in Canada, and improving vehicle sales in 2014
OVERVIEW
AUTO RETAILING INDUSTRY CHARACTERISTICS
Improving new vehicles sales in Canada in 2013 with sales increasing 4%
In 2014 Light Vehicles sales grew by 6.1% YoY with growth lead by
Porsche, Nissan, Land Rover, Jaguar and Infinity
Competitive pricing environment
due to easy access to online
information pertaining to pricing
Low barriers to entry
Advances in technology, styling and safety expected to drive future growth
Auto retail sector is an increasingly large portion of the economy with
annual spending of 112B up 6.1% compared to 2012
AUTO RETAILING
The market is fragmented with approximately 3,500 dealerships with 2,000
owners, sector is shifting away from “mom and pop” dealerships
A significant proportion of dealers will be retiring in the next five years,
creating a “succession planning crisis” leading to significant ownership
turnover
Low risk from suppliers due to
long term arrangements with
suppliers
Increasing M&A activities
NEW VEHICLE SALES BY PROVINCE VS. WCS PRICE
30%
100
25%
90
80
20%
60
10%
50
5%
40
30
0%
20
-5%
10
-10%
Jan, 2014
Apr, 2014
Ontario
Saskatchewan
Jul, 2014
Alberta
British Columbia and the Territories
Vehicle sales continues to improve
Sources: Bank of Canada, Canada Mortgage and Housing Corporation (CMHC), Marketline, Statistics Canada, and street research
Oct, 2014
Rest of Canada
Jan, 2015
WCS (US$/bbl)
(US$/bbl)
70
15%
AUTO CANADA – MARKET CONDITIONS
Market Conditions
Significant consolidation opportunities exist
OVERVIEW
FRAGMENTATION & SUCCESSION ISSUES
3,500
dealerships in
Canada
2,450 of them
retiring
858 possible
targets
2000+ owners with 3500+ dealerships in Canada
Compared to Auto Canada’s 48 dealerships
More than 70% dealers are looking to retire, out of which 30-40%
estimate the sale to an outside buyer as a realistic exit opportunity
858 addressable targets which represent significant opportunities
for consolidation
CANADIAN CONSOLIDATORS STORE COUNT
50
Western Canada
Ontario
Quebec
Atlantic Canada and Territories
40
30
20
10
0
AutoCanada
Go Auto
Murray
Jim Pattison
Wheaton
AutoPlanet
Rafih
Group John Scotti
Plenty of potential acquisition targets despite growing competition
Sources: Bank of Canada, Canada Mortgage and Housing Corporation (CMHC), Marketline, Statistics Canada, and street research
Car Nation
Myers
AUTOCANADA – THESIS POINT 1
Thesis Point 1: Accretive Acquisition Opportunities
THE RIGHT BRANDS IN THE RIGHT LOCATIONS
ACQUISITION TARGETS
The market is fragmented with approximately 3,500 dealerships
with 2,000 owners, sector is shifting away from “mom and pop”
dealerships
ACQ has received approval for a 2% NCIB, totaling a repurchase
program of up to 490,193 common shares between February 20,
2015 to February 19, 2016
Benefits of smaller dealership acquisition
Currently acquired at lower multiples – 4-6X EV/EBITDA
Any acquisition at the current multiple of 18.5X
EV/EBITDA is accretive
ANNUAL ACQUISITIONS
STRONG BALANCE SHEET SUPPORTS ACQUISITIONS
Metric
Net Debt/EBITDA
Interest Coverage Ratio
Working Capital
Metric
0.75X
7.15X
45M
48
52
31
22
22
23
24
26
17
Fragmented market trends favor AUTOCANADA
Increasing SG&A Costs due to a shift to service based model
70% (approximately 2450 dealerships) are facing succession
issues due to retiring owners
0
2006
0
2009
1
2010
1
2011
2
2012
Total Number of Dealerships
5
2013
4
Current
2015
# of Acquisitions
Robust and accretive acquisition opportunities
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – THESIS POINT 3
Thesis Point 2: Strong Brands and Exclusive Dealer Mix
THE RIGHT BRANDS IN THE RIGHT LOCATIONS
The majority of Auto Canada’s manufacturers are in the top 10 by
unit sales growth
Geographically ACQ is concentrated in Alberta and BC which
have favourable demographics, economies, and growth
32 of 48 dealerships are in Alberta and BC
Alberta personal disposable income is approximately 25%
higher than the national average
Market in western Canada is heavily skewed to light
trucks, which are more profitable than cars
70% of sales in western Canada are in light trucks
vs 57% national average
REGIONAL SALES EXCLUSIVITY
OEM typically grants a single owner the right to sell its new
vehicles in a defined geographic area
Manufacturers typically do not plan to have more dealerships in an
area than the market can support
TOP 10 OEMS BY INCREASE IN UNIT SALES
Rank
OEM
1
2
3
4
5
6
7
8
9
10
Chrystler
Honda
Nissan
GM
Ford
Subaru
Volkswagon
Toyota
Acura
Mercedes
2013 Volume YoY Change in 2013 Market
Increase
Unit Sales
Share
16,336
13,673
8,403
8,119
7,498
5,757
3,536
2,454
1,851
1,665
6.7%
10.4%
11.3%
3.6%
2.7%
18.6%
6.0%
1.4%
10.8%
5.0%
ACQ
Dealerships
14.8%
8.3%
4.7%
13.5%
16.3%
2.1%
3.6%
10.3%
1.1%
2.0%
11
3
6
1
5
-
PROVINCES BY INCREASE IN UNIT SALES
Rank
Province
2013 Volume YoY Change in 2013 Market
Increase
Unit Sales
Share
1 Ontario
2 Alberta
3 BC
4 Manitoba
5 Nova Scotia
6 Saskatchewan
7 Newfoundland
8 New Brunswick
9 PEI
10 Quebec
-
27,556
17,334
8,037
4,809
3,854
2,757
2,149
1,511
427
997
45.0%
7.3%
4.7%
9.7%
8.0%
5.0%
6.5%
3.9%
6.0%
-0.2%
ACQ
Dealerships
37.0%
14.7%
10.3%
3.1%
3.0%
3.3%
2.0%
2.3%
0.4%
23.8%
3
13
10
4
1
2
1
1
Considering that the company owns some of the most valuable dealership locations in Canada and has a strong balance
sheet it should deserve a higher valuation due to the lower investment risk
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – THESIS POINT 2
Thesis Point 3: Strong Business Model
DIVERSIFIED GROWTH
ACQ Growth
Strategy
Well established and accepted
dealership model has existed for over
50+ years in the Canadian marketplace
LTM REVENUE AND GROSS PROFIT SPLIT
5.6%
10.9%
Benefits of dealership franchise agreements
Exclusive sales territories
No cost consumer sales incentives
Brand marketing
Warranty repair work
29.5%
30.0%
Four business segments provide
diversified and stable revenue stream
22.3%
61.2%
8.1%
32.0%
Dealerships have a variable cost structure, with the parts and
service business covering most of the fixed costs of the entire
dealership (measured by absorption rate)
Parts and service business is counter cyclical and provides a stable
recurring revenue stream
New Vehicles
Used Vehicles
Parts & Services
Finance & Insurance
ABSORPTION RATE
91%
89%
88%
87%
86%
2009
2010
86%
2011
2012
2013
2014 LTM
Geographically diversified with margin opportunities in sub-scale regions
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – THESIS POINT 3
Thesis Point 3: Strong Business Model Cont’d
AUTO CANADA Growth Strategy
STRONG MANAGEMENT TEAM
Auto Canada has successfully acquired, opened or invested in 34
dealerships since the company’s IPO in May 2006
The Company has recently experienced a significant increase in
the number of interested vendors of auto dealerships in Canada
and has noticed that many of these opportunities are large, more
profitable premium dealerships
The Company has recently experienced a significant increase in
the number of interested vendors of auto dealerships in Canada
and has noticed that many of these opportunities are large, more
profitable premium dealerships
Pat Priestner
Tom Orysiuk
Steve Rose
Chris Burros
Erin Oor
Executive Chairman
President and CEO
Senior VP and COO
VP and CFO
VP of Corp Dev
Management team understands criteria for successful acquisitions:
Right brands in the right markets
Dedicated teams for both pre-acquisition assessment and
post-acquisition integration
Focus on acquisitions that are immediately accretive
Target 15% to 20% pretax annual return on investment
NEW BRANDS ADDED IN TWO YEARS
Geographically diversified with margin opportunities in sub-scale regions
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – RISKS
Risks
LACK OF DIVERSITY
GROWING ACQUISITION MULTIPLES
ACQ is highly exposed to the Western Canadian economy,
especially Alberta and British Columbia.
The Canadian auto dealership industry is currently in a
consolidation stage
The company’s revenue is highly sensitive to local market
conditions such as increased competition and reduced consumer
spending
As increasing number of dealers and small groups start acquiring
single dealerships or other smaller groups, acquisition multiples,
which are currently in the 4.0-6.0x EBITDA range, may increase
Depressed oil prices are causing higher unemployment in Alberta,
decreasing consumer spending
At higher acquisition multiples, ACQ may not be able to continue
expanding profitably
Recent acquisitions in Eastern Canada and planned future ones
will reduce ACQ’s exposure to Western Canada
ACQ’s track record for a thorough due diligence process gives us
confidence that they will not acquire companies at unwarranted
multiple also drop in oil prices should ease the upward pressure on
acquisition multiples
CHRYSLER AS A % OF REVENUE
RELIANCE ON CHRYSLER
44.81%
21.43%
16.34%
Majority of ACQ’s revenue come from Chrysler dealerships. Any
shift in consumer preferences will negatively affect revenues
ACQ has higher margins on the SUVs and light trucks it sells so a
demand shift towards more economical cars would impact profit
margins
ACQ is consistently making acquisitions and diversifying the car
dealerships it carries so the risk will decrease over time
Chrysler National Limit 8.0%
6.81%
AB
Edmonton
BC
Nationally
Risk mitigated through diversified geographic and products segments
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – CATALYSTS
Catalysts
OEM CONSTRAINTS
REBOUND IN OIL MARKET
With over 70% of current dealerships intending to semi-retire/retire,
OEMs are pressured to consider lifting restrictions on public
ownership of dealerships
A recovery in oil prices will increase employment and by
consequence consumer confidence and consumer spending in
Alberta
Restrictions have been lifted in US but not yet Canada – Canada is
next logical step
Crucial because 32% of Auto Canada’s revenue is generated in
Alberta
ACQ successfully broke restrictions in 2012 and acquired GM and
Kia dealerships. The company is experienced with negotiating with
OEMs on said restrictions
NEW ACQUISITIONS TO BE PRICED IN
1 YR PRICE MOVEMENT WTI
$120
$100
$80
$60
$40
Briges
Chevrolet
BMW
Laval/MINI
Laval
Toronto
Dodge
New
Lakewood
Chevrolet
Used
Tower
Chrysler
Dodge City
$20
$0
New acquisitions will be a key driver to new share appreciation
Sources: ACQ Investor Relations
AUTO CANADA – STREET COVERAGE
Street Coverage
ANALYST PRICE TARGETS
Company
RBC
CIBC
Cannaccord
GMP
Clarus
Cormark
Median
Mean
Current Share Price
Implied Upside
ANALYST RECOMMENDATIONS
INVESTMENT HIGHLIGHTS
Price Target
$70.00 AutoNation
$71.00
$66.00
$90.00
Asbury
$78.00
$70.00
70.50
74.17 Penske Auto
41.65
78.1%
RBC Capital Markets
ACQ shares have traded lower in recent
months in lockstep with the price of oil.
We clearly acknowledge Auto Canada’s
dealer concentration in Alberta, but
believe the selloff has been sharply
overdone
CIBC Capital Markets
Sonic Auto
While ACQ shares have sold off
materially since oil started falling in the
summer, we believe the sell-off is
overdone. Deals should keep rolling in,
and the impact of lower oil prices
appears manageable. Our price target is
reduced to $71 (was $73) and we see
today's price as an attractive entry point.
ACQ remains rated SO
AutoCanada
Buy
Hold
Sell
Valuation in line with street consensus
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – COMPARABLES SUMMARY
Comparables Summary
17.8x
15.6x
Industry Average 12.8x
10.8x
11.2x
Asbury
23.8x
16.50%
7.00%
0.3x
9.40%
-
AutoNation
13.1x
15.60%
7.60%
0.3x
7.10%
-
12.2x
13.2x
13.8x
EV / 2014 EBITDA
EV/2014 LTM
LTM Gross Margin
LTM SSS Growth
Net Debt/LTM EBITDA
NTM Revenue Growth
Dividend Yield
AutoCanada
18.5x
48.30%
17.30%
0.5x
54.30%
2.35%
Carmax
14.8x
15.20%
12.00%
0.9x
10.90%
-
Group 1
15.4x
15.30%
21.80%
0.2x
42.90%
0.91%
Lithia
14.4x
15.00%
12.10%
0.3x
11.90%
0.68%
Penske
13.1x
14.60%
11.70%
0.2x
6.90%
2.03%
17.7x
17.7x
19.9x
Industry Average 15.7x
12.6x
17.5x
15.5x
13.0x
EV / 2014 EBITDA
ACQ trading at premium relative to peers
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – FOOTBALL FIELD
Football Field
Note, a football field is a visual
diagram used to illustrate and
benchmark the bear/bull scenarios
of each valuation method observed
against share price performance. By
doing so we can see that ACQ is
trading on the low end of valuation
estimates.
$91.72
$70.00
$66.41
$64.49
$51.00
$55.89
$48.00
Current Share Price $42.65
$38.00
$29.43
DCF Analysis
Premium (30%-50%)
Analyst Range
Comparable Companies
$31.32
52 Week Range
Target share price $51
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – TORNADO SCHEDULE
Tornado Schedule
Metric
Benchmark
Change
Impact on EV
Terminal Multiple
10.0x
-1.0x / 1.0x
WACC
9.00%
-% / %
Long Term Grow th
2.50%
-% / %
Tax Rate
0.26
-% / %
Chart Data
Terminal Multiple
WACC
Long Term Grow th
Tax Rate
Base EV
788.58
1,068.70
1,068.70
1,068.70
Rank
2
4
1
3
Sensitivity Range
Min
Max
(1.0x)
1.0x
(1.0%)
1.0%
(1.0%)
1.0%
(1.0%)
1.0%
($13)
$13
($107)
$146
($6)
($52)
$6
$52
EV
Min
736.56
1,062.69
961.99
1,055.58
Tornado Range
Max
840.60
1,074.96
1,214.22
1,081.39
Min
($52)
($6)
($107)
($13)
Max
$52
$6
$146
$13
Note, a tornado schedule is used as
a sanity check on one’s model
assumptions. Illustrated it indicates
which variable had the greatest net
positive/negative effect on implied
EV.
Tornado schedule suggests that SSS growth has the greatest positive net effect on EV
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – MODEL SUMMARY
Model Summary
Cost of Capital
Perpetuity Grow th
Terminal Value
PV of Cash Flow s
PV of Terminal Value
Enterprise Value
Less: Debt
Less: Pref Shares
Less: Minority Int.
Add: Cash
Equity Value
Shares Outstanding
Im plied per Share
TV as a % of Total
Low
11.00%
2.00%
851,850.47
268,362.97
532,610.79
$800,973.76
268
Base
9.00%
2.50%
1,179,485.26
268,362.97
800,337.71
$1,068,700.67
268
Bull
7.00%
3.00%
1,916,663.55
268,362.97
1,413,575.09
$1,681,938.06
268
52
$800,757.76
24103.67
$33.22
106%
52
$1,068,484.67
24103.67
$44.33
110%
52
$1,681,722.06
24103.67
$69.77
114%
Low
11.00%
8.0x
613,332.34
268,362.97
383,479.77
$651,842.74
268
Base
9.00%
10.0x
766,665.42
268,362.97
520,219.51
$788,582.48
268
Bull
7.00%
12.0x
919,998.50
268,362.97
678,516.04
$946,879.01
268
52
$651,626.74
24103.67
$27.03
94%
52
$788,366.48
24103.67
$32.71
97%
52
$946,663.01
24103.67
$39.27
97%
Key Assum ptions
Valuation Date
Projection Year
Currency
WACC
Terminal Multiple
Terminal Grow th
Target Tax Rate
3/23/2015
2014
C$
9.00%
10.0x
2.50%
26.00%
Tax Rate
Shares Outstanding
Cost of Capital
Terminal Multiple
Terminal Value
PV of Cash Flow s
PV of Terminal Value
Enterprise Value
Less: Debt
Less: Pref Shares
Less: Minority Int.
Add: Cash
Equity Value
Shares Outstanding
Im plied per Share
TV as a % of Total
Projections are far below analyst expectations
Sources: ACQ Investor Relations
AUTO CANADA – REVENUE PROJECTIONS
Revenue Projections
Revenue Schedule
2011
2012
2013
Total Revenue
Organic Growth (%)
6.99%
Less: Wholly-Ow ned Revenue
Calgary, Alberta (Courtesy Chrysler Dodge)
Stub period (July 1st, 2013)
Grand Prairie, Alberta (Grand Prairie Volksw agen)
Stub period (January 4th, 2013)
Winnipeg, Manitoba (St. James Audi)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (St. James Volksw agen)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge)
Stub period (April 1st, 2013)
Subtotal
2014
1,409,040
28,973
0.5
57,947
1
33,655
0.75
33,655
0.75
33,655
0.75
187,886
Less: Dealership investment revenue
Saskatoon, Saskatchew an (Saskatoon Motor Products)
Stub period (March 7th, 2013)
Prince Albert, Saskatchew an (Mann-Northw ay Auto Source)
Stub period (September 9th, 2013)
Subtotal
Total
55,220
0.67
27,610
0.33
82,831
270,716
2016
2017
1,507,532
1,612,908
1,725,651
1,846,274
1,975,328
Acquisition Grow th
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
2.00
1.00
1.00
4.00
3.00
2.00
1.00
2.00
8.00
2.00
3.00
1.00
2.00
8.00
3.00
2.00
1.00
2.00
8.00
3.00
2.00
2.00
7.00
Acquisition Revenue Contribution
British Columbia
Alberta
115,893.45
Saskatchew an
Manitoba
12,854.50
Ontario
35,198.00
Other
Total
163,945.95
143,839.67
115,893.45
12,854.50
70,396.00
342,983.62
95,893.11
173,840.18
20,707.67
70,396.00
360,836.96
143,839.67
115,893.45
12,854.50
70,396.00
342,983.62
143,839.67
115,893.45
70,396.00
330,129.12
1,671,477.85
1,955,892.00
2,086,487.63
2,189,257.27
2,305,457.30
18.6%
17.0%
6.7%
4.9%
5.3%
Total Revenue
1,138,324
8.42%
Revenue
1,009,326
Less: Dealership investment revenue
Sherw ood Park, Alberta (Sherw ood Park Chevrolet)
Stub period (June 30th, 2012)
Sherw ood Park, Alberta (Sherw ood Buick GMC)
Stub period (June 30th, 2012)
Duncan, British Columbia (Peter Baljet Chevrolet GMC Buick)
Stub period (March 30th, 2013)
Total
-
1,101,902
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
1,049,922
5.57%
994,551
2018
Organic Revenue
Implied Growth
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
2015
25,990
0.5
25,990
0.5
51,980
Organic revenue was first projected, followed by anticipated acquisition growth
AUTO CANADA – VALUATION SUMMARY
Valuation Summary
1,200
$100
$91.72
$90
1,000
$80
$70
800
$70.00
$66.41
$64.49
$60
$51.00
600
$51.00
$50
$55.89
$40
$48.00
Current Share Price $42.65
400
$48.00
$30
$38.00
$31.32
$29.43
DCF Analysis
Premium (30%- Analyst Range
50%)
Comparable
Companies
$10
52 Week Range
Assumptions
$20
200
$0
3/13/2014 5/13/2014 7/13/2014 9/13/2014 11/13/2014 1/13/2015 3/13/2015
DCF Analysis
SSS Growth
14.37%
Growth Rate
2%
Revenue/Dealer
$50,523
WACC
9%
Tax Rate
26%
COGS as a % of Rev
83%
Price Target
$51.00
Current Price
$41.65
Annualized Return
Running Case:
19.58%
Base
Returns reflect base case scenario
Sources: ACQ Investor Relations
ACIIC
APPENDIX
Team B-ACIIC
AUTO CANADA – DUPONT ANALYSIS
AUTO CANADA DuPont Analysis
THREE STEP DUPONT
STATISTICS
Three Step Method
Net Profit Margin
Asset Turnover
Equity Multipler
ROE
2010
0.02
3.33
3.17
17.72%
2011
0.04
3.02
2.96
32.57%
2012
0.02
2.68
3.3
19.44%
2013
0.03
2.28
3.25
20.08%
0.045
0.04
3
0.035
2.5
0.03
2
0.025
0.02
1.5
Five Step Method
Tax Burden
Interest Burden
EBIT Margin
Asset Turnover
Leverage
ROE
3.5
2010
0.74
0.71
0.03
3.52
3.04
17.97%
2011
0.75
0.85
0.06
3.39
3.05
37.67%
2012
0.74
0.79
0.04
2.96
3.14
20.38%
2013
0.74
0.90
0.04
2.74
3.27
24.28%
0.015
1
0.01
0.5
0.005
0
0
2010
2011
Asset Turnover
2012
Equity Multipler
2013
Net Profit Margin
FIVE STEP DUPONT
Tax Burden
2010
2011
Interest Burden
EBIT Margin
2012
Asset Turnover
2013
Leverage
Asset turnover decline questions asset efficiency
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – HISTORICAL BALANCE SHEET
Historical Balance Sheet
NET DEBT (CASH)
CASH AND CASH EQUIVALENTS
$123
$53
$38
$34
$36
-$6
-$11
2010
$66
$64
-$29
2011
2012
2013
2014
2010
TOTAL DEBT
2011
2012
2013
2014
REVOLVING DEBT AND INVENTORY
$438
$155
$472
$264 $278
$88
$204 $199
$126 $118
$26
$24
$161
$28
2010
2010
2011
$138
2012
2013
2014
2011
2012
Revolving Credit Facility
2013
2014
Inventory
2014 was a leap year in acquisitions
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – COMPARABLE COMPANIES ANALYSIS
Comparable Companies Analysis
Price /
(US$ millions, except per share data)
Price
Equity Value ($M)
Asbury Automotive
$75.35
Autonation
$60.81
Carmax
EV /
Enterprise Value ($M)
LTM EPS
FY1 EPS
FY2 EPS
LTM EBITDA
FY1 EBITDA
FY2 EBITDA
LTM Sales
FY1 Sales
FY2 Sales
Dividend Yield (%)
$2,075.2
$3,546.0
17.1x
14.8x
13.2x
14.8x
11.2x
10.4x
0.3x
0.3x
0.3x
-
$6,910.1
$12,053.5
17.3x
15.4x
13.9x
15.4x
12.7x
11.8x
0.3x
0.3x
0.3x
-
$62.16
$13,052.2
$21,684.3
25.5x
23.8x
21.3x
23.8x
20.1x
19.0x
0.8x
0.9x
0.8x
-
Group 1 Automotive
$76.81
$1,862.4
$4,292.9
12.7x
11.4x
10.3x
11.4x
11.7x
11.0x
0.2x
0.2x
0.2x
0.91%
Lithia Motors
$88.82
$2,333.7
$4,128.4
17.0x
14.4x
12.8x
14.4x
12.1x
11.0x
0.3x
0.3x
0.3x
0.68%
Penske Automotive
$48.61
$4,389.5
$8,469.1
15.0x
13.1x
12.0x
13.1x
13.2x
12.2x
0.2x
0.2x
0.2x
2.03%
'
'
'
'
17.4x
'
15.5x
'
13.9x
'
15.5x
'
13.5x
'
12.6x
'
0.4x
'
0.4x
'
0.4x
'
1.21%
$42.60
$819.9
$1,285.3
20.0x
18.5x
13.8x
18.5x
17.1x
11.9x
0.3x
0.5x
0.3x
2.35%
Automobile Dealers
Average
AutoCanada
Margins
(US$ millions, except per share data)
Price
Equity Value ($M)
Asbury Automotive
$75.35
Autonation
$60.81
Carmax
Revenue Growth
EBITDA Growth
Enterprise Value ($M)
SSS Growth
Net Debt/EBITDA
Gross
EBITDA
LTM
NTM
LTM
NTM
ROE
ROIC
$2,075.2
$3,546.0
7.00%
0.3x
16.50%
5.10%
9.99%
9.40%
14.59%
8.12%
23.86%
9.20%
$6,910.1
$12,053.5
7.60%
0.3x
15.60%
4.80%
9.08%
7.10%
10.71%
5.70%
20.26%
7.10%
$62.16
$13,052.2
$21,684.3
12.00%
0.9x
15.20%
7.20%
12.10%
10.90%
8.51%
16.09%
17.11%
5.08%
Group 1 Automotive
$76.81
$1,862.4
$4,292.9
21.80%
0.2x
15.30%
4.90%
34.56%
42.90%
26.76%
28.10%
8.88%
4.99%
Lithia Motors
$88.82
$2,333.7
$4,128.4
12.10%
0.3x
15.00%
3.30%
18.92%
11.90%
16.38%
12.60%
22.97%
7.41%
Penske Automotive
$48.61
$4,389.5
$8,469.1
11.70%
0.2x
14.60%
3.90%
11.43%
6.90%
19.80%
-7.00%
18.16%
6.19%
'
'
'
'
'
'
'
'
'
'
'
'
'
12.03%
0.4x
15.37%
4.87%
16.01%
14.85%
16.13%
14.12%
18.54%
6.66%
17.30%
0.5x
48.30%
4.83%
42.00%
54.30%
46.60%
61.80%
33.88%
7.62%
Automobile Dealers
Average
AutoCanada
$42.60
P/E LTM
P/E FY1
P/E FY2
EV/EBITDA LTM
EV/EBITDA FY1
EV/EBITDA FY2
Average Implied Share Price
$819.9
Low
12.7x
11.4x
10.3x
11.4x
11.2x
11.0x
$1,285.3
Multiple
Mean
17.4x
15.5x
13.9x
15.5x
13.5x
12.6x
High
25.5x
23.8x
21.3x
23.8x
20.1x
19.0x
Metric
$2.31
$2.50
$3.35
$88.47
$95.71
$137.54
Price/Share
Low
Mean
$29.34 $40.19
$28.50 $38.75
$34.51 $46.57
$20.35 $35.15
$22.94 $31.92
$40.94 $49.92
$29.43 $40.42
High
$58.91
$59.50
$71.36
$65.13
$57.70
$85.85
$66.41
ACIIC
AUTO CANADA – DISCOUNTED CASH FLOW
Discounted Cash Flow Analysis
Revenue
Growth (%)
COGS
Gross Profit
Margin (%)
SG&A
as a % of Revenue 83.00%
2014
$1,671,477.85
18.6%
1,387,326.62
2015
$1,955,892.00
17.0%
1623390.357
Projection Period
2016
$2,086,487.63
6.7%
1731784.733
2017
$2,189,257.27
4.9%
1817083.537
2018
$2,305,457.30
5.3%
1913529.561
as a % of Revenue 13.00%
284,151.23
17.0%
217,292.12
332,501.64
17.0%
254,265.96
354,702.90
17.0%
271,243.39
372,173.74
17.0%
284,603.45
391,927.74
17.0%
299,709.45
66,859.11
4.0%
78,235.68
4.0%
83,459.51
4.0%
87,570.29
4.0%
92,218.29
4.0%
66,859.11
17,383.37
78,235.68
20,341.28
83,459.51
21,699.47
87,570.29
22,768.28
92,218.29
23,976.76
49,475.74
12,382.58
7,537.66
-
57,894.40
13,715.92
8,064.54
-
61,760.03
15,142.46
8,628.25
-
64,802.02
16,668.71
9,231.37
-
68,241.54
18,301.65
9,876.64
-
54,320.67
0.5
0.96
52,029.77
63,545.78
1.5
0.88
55,840.20
68,274.24
2.5
0.81
55,041.55
72,239.36
3.5
0.74
53,429.50
76,666.54
4.5
0.68
52,021.95
2013A
$1,409,040.00
EBITDA
Margin (%)
Depreciation & Amortization
EBIT
Taxes
target tax rate 26.00%
EBIAT
Plus: Depreciation & Amortization
Less: CAPEX
Less: Change in WC
WACC 9.00%
Unlevered Free Cash Flow s
Discount Period
Discount Factor
PV of Future Cash Flow s
Model Inputs
Key Assum ptions
Valuation Date
Projection Year
Currency
WACC
Terminal Multiple
Terminal Grow th
Target Tax Rate
3/23/2015
2014
C$
9.00%
10.0x
2.50%
26.00%
AUTO CANADA – DISCOUNTED CASH FLOW
Discounted Cash Flow Analysis
SENSITIVITY
$1,068.70
8.00%
1074.96
8.50%
1071.80
WACC
9.00%
1068.70
9.50%
1065.66
10.00%
1062.69
$788.58
9.0x
736.56
9.5x
762.57
Terminal Multiple
10.0x
788.58
10.5x
814.59
11.0x
840.60
$1,068.70
1.50%
961.99
2.00%
1011.53
Grow th in Perpetuity
2.50%
1068.70
3.00%
1135.40
3.50%
1214.22
$1,068.48
25.00%
1081.39
25.50%
1074.94
Tax Rate
26.00%
1068.48
26.50%
1062.03
27.00%
1055.58
$44.33
1.5%
2.0%
2.5%
3.0%
3.5%
8.00%
$40.16
$38.36
$38.36
$40.16
$44.59
8.50%
$40.29
$38.50
$38.50
$40.29
$44.72
WACC
9.00%
$40.29
$38.50
$38.50
$40.29
$44.72
9.50%
$40.16
$38.36
$38.36
$40.16
$44.59
10.00%
$39.90
$38.10
$38.10
$39.90
$44.33
$32.71
8.0%
8.5%
9.0%
9.5%
10.0%
9.0x
$31.37
$30.96
$30.55
$30.15
$29.77
9.5x
$30.25
$29.85
$29.47
$29.10
$28.73
Terminal Multiple
10.0x
$30.25
$29.85
$29.47
$29.10
$28.73
10.5x
$31.37
$30.96
$30.55
$30.15
$29.77
11.0x
$33.62
$33.16
$32.71
$32.27
$31.84
AUTO CANADA – HISTORIC REVENUE
Historic Revenue
Revenue Schedule
2011
2012
2013
Total Revenue
Organic Growth (%)
6.99%
Less: Wholly-Ow ned Revenue
Calgary, Alberta (Courtesy Chrysler Dodge)
Stub period (July 1st, 2013)
Grand Prairie, Alberta (Grand Prairie Volksw agen)
Stub period (January 4th, 2013)
Winnipeg, Manitoba (St. James Audi)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (St. James Volksw agen)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge)
Stub period (April 1st, 2013)
Subtotal
1,409,040
28,973
0.5
57,947
1
33,655
0.75
33,655
0.75
33,655
0.75
187,886
Less: Dealership investment revenue
Saskatoon, Saskatchew an (Saskatoon Motor Products)
Stub period (March 7th, 2013)
Prince Albert, Saskatchew an (Mann-Northw ay Auto Source)
Stub period (September 9th, 2013)
Subtotal
Total
55,220
0.67
27,610
0.33
82,831
270,716
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
1,138,324
8.42%
Revenue
1,009,326
Less: Dealership investment revenue
Sherw ood Park, Alberta (Sherw ood Park Chevrolet)
Stub period (June 30th, 2012)
Sherw ood Park, Alberta (Sherw ood Buick GMC)
Stub period (June 30th, 2012)
Duncan, British Columbia (Peter Baljet Chevrolet GMC Buick)
Stub period (March 30th, 2013)
Total
-
1,101,902
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
1,049,922
5.57%
994,551
25,990
0.5
25,990
0.5
51,980
AUTO CANADA – GEOGRAPHIC DATA
Geographic Data
Geographic Data
Location of Dealership
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
# of Dealerships
9
11
0
0
3
5
Location of Dealership
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
# of Dealerships
9
9
0
0
3
3
Location of Dealership
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
# of Dealerships
9
9
0
0
3
3
28
Year Ended Decem ber 31, 2013
Revenue
% of Total Revenue
431,519
31%
637,414
45%
105,594
7%
234,513
17%
1,409,040
100%
24
Year Ended Decem ber 31, 2012
Revenue
% of Total Revenue
405,500
37%
467,819
42%
92,110
8%
136,473
12%
1,101,902
100%
24
Year Ended Decem ber 31, 2011
Revenue
% of Total Revenue
359,725
36%
411,440
41%
107,719
11%
130,442
13%
1,009,326
100%
Revenue/Dealership
47,947
57,947
35,198
46,903
187,994
Revenue/Dealership
45,056
51,980
30,703
45,491
173,230
Revenue/Dealership
39,969
45,716
35,906
43,481
165,072
Acquisition Data
Location of Dealerships
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Average
Revenue
44,324
51,881
33,936
45,291
EBIT Margin/
Dealership
1,705
1,996
1,306
1,743
Net Income/
Dealership
1,264
1,479
967
1,291
Annual EPS/
Dealership
$0.06
$0.07
$0.05
$0.06
Team B-ACIIC
Please note that none of the authors in this
pitch have any long or short positions on ACQ
CONTACT INFORMATION
Natalia Lazarevic – [email protected]
Christian Avolio – [email protected]
Darren Viegas – [email protected]
Ruohan Chen – [email protected]
Joshua Rho – [email protected]
Andre Luk – [email protected]
Ben Liu – [email protected]
Michael Saskin – [email protected]
Krishna Aggarwal – [email protected]
AUTO CANADA - COMPANY OVERVIEW
AUTO CANADA Overview
OVERVIEW
One of the largest multi-location dealership groups and the only
Since prices
bottomed
out in
mid-June, spot
uraniumheadquartered
has rebounded %
publicly
traded
Canadian
automobile
dealership,
in
to
Edmonton
it currently services customers across eight provinces
Revenue is derived from four operations, new vehicle sales, used
vehicle sales, financing and insurance, and parts and servicing
Sold approximately 36,000 vehicles and processed over 364,000
service and repair orders
Operates 48 franchised dealerships in eight provinces and has
over 3,600 employees
Represents eight vehicle original equipment manufacturers
(“OEMs”) and 19 brands with dealerships based primarily in
Western Canada
Parts and
Servicing
Original
Equipment
Manufacturer
(OEM)
NUMBER OF DEALERSHIPS AT YEAR END
4.1%
4.0%
4.2%
$80
$70
3.5%
3.4%
3.0%
$50
$40
2.9%
51-53
31
22
22
23
24
25
2008
2009
2010
2011
2012
$30
2.4%
2.0%
48
130% increase in
dealerships since 2008
$60
2.5%
Consumer
Financing and
Insurance
EBITDA PROFILE
3.0%
AUTO CANADA
$20
1.9%
$10
1.5%
$0
2008
2009
2010
2011
EBITDA
2012
Margin
2013
LTM
2013
Current
By May
2015
The only publicly trade automotive dealership group in Canada
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA - COMPANY OVERVIEW
AUTO CANADA Revenue Breakdown
GEOGRAPHIC BREAKDOWN
BUSINESS SEGMENTS
SAME STORE GROSS PROFIT GROWTH
17.5%
Based on dealerships
owned for at least 2 years
13.9%
10.9%
8.0%
4.1%
-2.8%
2008
-7.8%
2009
2011
2010
2011
2012
2013
LTM
New Vehicles
2012
Used Vehicles
2013
Parts & Servicing
LTM
Finance & Insurance
ACQ is geographically diversified, and it’s business founded on four revenue streams
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – TRADING HISTORY
Trading History
PRICE VOLUME ANALYSIS
SUMMARY STATISTICS
Volume
1,200
$100
$90
1,000
Appointment of
CFO
$80
Capitalization
Share Price
($)
Shares
($)
Market Cap
Add: Debt
($)
Add: Preferred Shares
Add: Minority Interest
Less: Cash
($)
Less: Investments
($)
Enterprise Value
41.6
24.5 M
960.4
119.9
N/A
N/A
35M
N/A
1.6B
$70
800
Market Data
Closing of Equity
Financing and
Secondary
Offering
$60
600
$50
$40
Sales surge 12.6%
in September
400
$30
$20
200
$10
3/13/2014
52 Week Low
52 Week High
Avg Vol
5/13/2014
7/13/2014
9/13/2014
11/13/2014
1/13/2015
91.72
31.32
152,368
Trading Multiples
EV/Revenue
EV/EBITDA
P/E
P/B
P/Sales
Analysts Estimates
Annual EPS
Quarterly EPS
Mean Recommendation
PEG Ratio
19.9X
19.5x
2.46x
.47x
2.3
0.56
2
2.3
$0
3/13/2015
ACQ trading in lockstep with oil in recent months
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – RECENT EVENTS
Recent Events
OVERVIEW
Bridges Chevrolet Acquisition
in North Battleford
BMW Laval & MINI Laval
Acquisition in Laval
Toronto Dodge Chrysler
Acquisition in Toronto
Lakewood Chevrolet
Acquisition in Edmonton
Tower Chrysler Acquisition in
Calgary
November 17, 2014: Announced approval from GM Canada to purchase an 80% non-voting equity interest
in Bridges Chevrolet Buick GMC located in North Battleford, Saskatchewan
Originally founded in 1976
The franchise retailed 396 new and 387 used vehicles in 2013
November 5, 2014: Announced approval from BMW Canada to purchase an 85% interest in the assets
(including land and building) of Auto Boulevard St. Martin Inc. in Laval, Quebec
Originally founded in 1973
The franchises retailed 2,208 new and 680 used vehicles in 2013
October 20, 2014: Announced approval from Chrysler Canada to purchase Toronto Dodge Chrysler
located in Toronto, Ontario
Originally founded over 25 years ago
The franchise retailed 615 new and 199 used vehicles in 2013
August 19, 2014: Announced approval from General Motors of Canada to purchase a 75% non-voting
equity interest in the shares of Lakewood Chevrolet located in Edmonton, Alberta
Originally founded in 1980
The franchise retailed 659 new and 343 used vehicles in 2013
August 13, 2014: Announced approval from Chrysler Canada to purchase Tower Chrysler located in
Calgary, Alberta
Originally founded over 44 years ago
The franchise retailed 889 new and 380 used vehicles in 2013
Consistent demand growth and acquisitions will provide tailwinds for Auto Canada’s growth
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – RECENT EVENTS
Recent Events Cont’d
OVERVIEW
Closing of Equity Financing
and Secondary Offering
Completion of Calgary Dealer
Group Acquisition
Dodge City Acquisition in
Saskatoon
Increased Acquisition
Guidance
The company issued 2,565,000 common shares from treasury for gross proceeds of $200 million
CAG and its subsidiaries sold, with the full exercise of the over-allotment option, an aggregate of
2,598,500 common shares for gross proceeds of $203 million
July 4, 2014: Confirmed completion of the acquisition of six dealerships and one exclusive right to build and
operate a Nissan motor vehicle dealership on a designated property in Southeast Calgary, from the Hyatt
Automotive Group Inc. or its affiliates.
The Hyatt Dealerships are known by their trade names: Hyatt Mitsubishi, Fish Creek Nissan,
Calgary Hyundai, Northland Volkswagen, Hyatt Infiniti and Crowfoot Hyundai.
June 18, 2014: Announced approval from Chrysler Canada to purchase Dodge City located in Saskatoon,
Saskatchewan
Originally founded over 45 years ago
The franchise retailed 1,056 new and 841 used vehicles in 2013
June 5, 2014: Announced an upward revision to acquisition guidance to complete an additional 8 to 10
dealership acquisitions over the next 12 months
This is in addition to the purchase agreements for eight dealerships announced April 28,2014
June 5, 2014: Announced extension of Pat Priestner’s employment agreement to May 31, 2019
Appointment of CFO
Extension of Chairman and
CEO Employment Agreement
July 11, 2014: Announced closing of equity financing and secondary offering
Previous agreement expired in 2017
June 5, 2014: Appointment of Christopher Burrows as CFO, effective September 1, 2014
Previously VP and CFO of K-Bro Linen Systems and VP Finance, Administration & Tax with Stuart
Olson Construction Group
Consistent demand growth and acquisitions will provide tailwinds for Auto Canada’s growth
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – MARKET CONDITIONS
Market Conditions
Public ownership evolving in Canada, and improving vehicle sales in 2014
OVERVIEW
AUTO RETAILING INDUSTRY CHARACTERISTICS
Improving new vehicles sales in Canada in 2013 with sales increasing 4%
In 2014 Light Vehicles sales grew by 6.1% YoY with growth lead by
Porsche, Nissan, Land Rover, Jaguar and Infinity
Competitive pricing environment
due to easy access to online
information pertaining to pricing
Low barriers to entry
Advances in technology, styling and safety expected to drive future growth
Auto retail sector is an increasingly large portion of the economy with
annual spending of 112B up 6.1% compared to 2012
AUTO RETAILING
The market is fragmented with approximately 3,500 dealerships with 2,000
owners, sector is shifting away from “mom and pop” dealerships
A significant proportion of dealers will be retiring in the next five years,
creating a “succession planning crisis” leading to significant ownership
turnover
Low risk from suppliers due to
long term arrangements with
suppliers
Increasing M&A activities
NEW VEHICLE SALES BY PROVINCE VS. WCS PRICE
30%
100
25%
90
80
20%
60
10%
50
5%
40
30
0%
20
-5%
10
-10%
Jan, 2014
Apr, 2014
Ontario
Saskatchewan
Jul, 2014
Alberta
British Columbia and the Territories
Vehicle sales continues to improve
Sources: Bank of Canada, Canada Mortgage and Housing Corporation (CMHC), Marketline, Statistics Canada, and street research
Oct, 2014
Rest of Canada
Jan, 2015
WCS (US$/bbl)
(US$/bbl)
70
15%
AUTO CANADA – MARKET CONDITIONS
Market Conditions
Significant consolidation opportunities exist
OVERVIEW
FRAGMENTATION & SUCCESSION ISSUES
3,500
dealerships in
Canada
2,450 of them
retiring
858 possible
targets
2000+ owners with 3500+ dealerships in Canada
Compared to Auto Canada’s 48 dealerships
More than 70% dealers are looking to retire, out of which 30-40%
estimate the sale to an outside buyer as a realistic exit opportunity
858 addressable targets which represent significant opportunities
for consolidation
CANADIAN CONSOLIDATORS STORE COUNT
50
Western Canada
Ontario
Quebec
Atlantic Canada and Territories
40
30
20
10
0
AutoCanada
Go Auto
Murray
Jim Pattison
Wheaton
AutoPlanet
Rafih
Group John Scotti
Plenty of potential acquisition targets despite growing competition
Sources: Bank of Canada, Canada Mortgage and Housing Corporation (CMHC), Marketline, Statistics Canada, and street research
Car Nation
Myers
AUTOCANADA – THESIS POINT 1
Thesis Point 1: Accretive Acquisition Opportunities
THE RIGHT BRANDS IN THE RIGHT LOCATIONS
ACQUISITION TARGETS
The market is fragmented with approximately 3,500 dealerships
with 2,000 owners, sector is shifting away from “mom and pop”
dealerships
ACQ has received approval for a 2% NCIB, totaling a repurchase
program of up to 490,193 common shares between February 20,
2015 to February 19, 2016
Benefits of smaller dealership acquisition
Currently acquired at lower multiples – 4-6X EV/EBITDA
Any acquisition at the current multiple of 18.5X
EV/EBITDA is accretive
ANNUAL ACQUISITIONS
STRONG BALANCE SHEET SUPPORTS ACQUISITIONS
Metric
Net Debt/EBITDA
Interest Coverage Ratio
Working Capital
Metric
0.75X
7.15X
45M
48
52
31
22
22
23
24
26
17
Fragmented market trends favor AUTOCANADA
Increasing SG&A Costs due to a shift to service based model
70% (approximately 2450 dealerships) are facing succession
issues due to retiring owners
0
2006
0
2009
1
2010
1
2011
2
2012
Total Number of Dealerships
5
2013
4
Current
2015
# of Acquisitions
Robust and accretive acquisition opportunities
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – THESIS POINT 3
Thesis Point 2: Strong Brands and Exclusive Dealer Mix
THE RIGHT BRANDS IN THE RIGHT LOCATIONS
The majority of Auto Canada’s manufacturers are in the top 10 by
unit sales growth
Geographically ACQ is concentrated in Alberta and BC which
have favourable demographics, economies, and growth
32 of 48 dealerships are in Alberta and BC
Alberta personal disposable income is approximately 25%
higher than the national average
Market in western Canada is heavily skewed to light
trucks, which are more profitable than cars
70% of sales in western Canada are in light trucks
vs 57% national average
REGIONAL SALES EXCLUSIVITY
OEM typically grants a single owner the right to sell its new
vehicles in a defined geographic area
Manufacturers typically do not plan to have more dealerships in an
area than the market can support
TOP 10 OEMS BY INCREASE IN UNIT SALES
Rank
OEM
1
2
3
4
5
6
7
8
9
10
Chrystler
Honda
Nissan
GM
Ford
Subaru
Volkswagon
Toyota
Acura
Mercedes
2013 Volume YoY Change in 2013 Market
Increase
Unit Sales
Share
16,336
13,673
8,403
8,119
7,498
5,757
3,536
2,454
1,851
1,665
6.7%
10.4%
11.3%
3.6%
2.7%
18.6%
6.0%
1.4%
10.8%
5.0%
ACQ
Dealerships
14.8%
8.3%
4.7%
13.5%
16.3%
2.1%
3.6%
10.3%
1.1%
2.0%
11
3
6
1
5
-
PROVINCES BY INCREASE IN UNIT SALES
Rank
Province
2013 Volume YoY Change in 2013 Market
Increase
Unit Sales
Share
1 Ontario
2 Alberta
3 BC
4 Manitoba
5 Nova Scotia
6 Saskatchewan
7 Newfoundland
8 New Brunswick
9 PEI
10 Quebec
-
27,556
17,334
8,037
4,809
3,854
2,757
2,149
1,511
427
997
45.0%
7.3%
4.7%
9.7%
8.0%
5.0%
6.5%
3.9%
6.0%
-0.2%
ACQ
Dealerships
37.0%
14.7%
10.3%
3.1%
3.0%
3.3%
2.0%
2.3%
0.4%
23.8%
3
13
10
4
1
2
1
1
Considering that the company owns some of the most valuable dealership locations in Canada and has a strong balance
sheet it should deserve a higher valuation due to the lower investment risk
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – THESIS POINT 2
Thesis Point 3: Strong Business Model
DIVERSIFIED GROWTH
ACQ Growth
Strategy
Well established and accepted
dealership model has existed for over
50+ years in the Canadian marketplace
LTM REVENUE AND GROSS PROFIT SPLIT
5.6%
10.9%
Benefits of dealership franchise agreements
Exclusive sales territories
No cost consumer sales incentives
Brand marketing
Warranty repair work
29.5%
30.0%
Four business segments provide
diversified and stable revenue stream
22.3%
61.2%
8.1%
32.0%
Dealerships have a variable cost structure, with the parts and
service business covering most of the fixed costs of the entire
dealership (measured by absorption rate)
Parts and service business is counter cyclical and provides a stable
recurring revenue stream
New Vehicles
Used Vehicles
Parts & Services
Finance & Insurance
ABSORPTION RATE
91%
89%
88%
87%
86%
2009
2010
86%
2011
2012
2013
2014 LTM
Geographically diversified with margin opportunities in sub-scale regions
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – THESIS POINT 3
Thesis Point 3: Strong Business Model Cont’d
AUTO CANADA Growth Strategy
STRONG MANAGEMENT TEAM
Auto Canada has successfully acquired, opened or invested in 34
dealerships since the company’s IPO in May 2006
The Company has recently experienced a significant increase in
the number of interested vendors of auto dealerships in Canada
and has noticed that many of these opportunities are large, more
profitable premium dealerships
The Company has recently experienced a significant increase in
the number of interested vendors of auto dealerships in Canada
and has noticed that many of these opportunities are large, more
profitable premium dealerships
Pat Priestner
Tom Orysiuk
Steve Rose
Chris Burros
Erin Oor
Executive Chairman
President and CEO
Senior VP and COO
VP and CFO
VP of Corp Dev
Management team understands criteria for successful acquisitions:
Right brands in the right markets
Dedicated teams for both pre-acquisition assessment and
post-acquisition integration
Focus on acquisitions that are immediately accretive
Target 15% to 20% pretax annual return on investment
NEW BRANDS ADDED IN TWO YEARS
Geographically diversified with margin opportunities in sub-scale regions
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – RISKS
Risks
LACK OF DIVERSITY
GROWING ACQUISITION MULTIPLES
ACQ is highly exposed to the Western Canadian economy,
especially Alberta and British Columbia.
The Canadian auto dealership industry is currently in a
consolidation stage
The company’s revenue is highly sensitive to local market
conditions such as increased competition and reduced consumer
spending
As increasing number of dealers and small groups start acquiring
single dealerships or other smaller groups, acquisition multiples,
which are currently in the 4.0-6.0x EBITDA range, may increase
Depressed oil prices are causing higher unemployment in Alberta,
decreasing consumer spending
At higher acquisition multiples, ACQ may not be able to continue
expanding profitably
Recent acquisitions in Eastern Canada and planned future ones
will reduce ACQ’s exposure to Western Canada
ACQ’s track record for a thorough due diligence process gives us
confidence that they will not acquire companies at unwarranted
multiple also drop in oil prices should ease the upward pressure on
acquisition multiples
CHRYSLER AS A % OF REVENUE
RELIANCE ON CHRYSLER
44.81%
21.43%
16.34%
Majority of ACQ’s revenue come from Chrysler dealerships. Any
shift in consumer preferences will negatively affect revenues
ACQ has higher margins on the SUVs and light trucks it sells so a
demand shift towards more economical cars would impact profit
margins
ACQ is consistently making acquisitions and diversifying the car
dealerships it carries so the risk will decrease over time
Chrysler National Limit 8.0%
6.81%
AB
Edmonton
BC
Nationally
Risk mitigated through diversified geographic and products segments
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – CATALYSTS
Catalysts
OEM CONSTRAINTS
REBOUND IN OIL MARKET
With over 70% of current dealerships intending to semi-retire/retire,
OEMs are pressured to consider lifting restrictions on public
ownership of dealerships
A recovery in oil prices will increase employment and by
consequence consumer confidence and consumer spending in
Alberta
Restrictions have been lifted in US but not yet Canada – Canada is
next logical step
Crucial because 32% of Auto Canada’s revenue is generated in
Alberta
ACQ successfully broke restrictions in 2012 and acquired GM and
Kia dealerships. The company is experienced with negotiating with
OEMs on said restrictions
NEW ACQUISITIONS TO BE PRICED IN
1 YR PRICE MOVEMENT WTI
$120
$100
$80
$60
$40
Briges
Chevrolet
BMW
Laval/MINI
Laval
Toronto
Dodge
New
Lakewood
Chevrolet
Used
Tower
Chrysler
Dodge City
$20
$0
New acquisitions will be a key driver to new share appreciation
Sources: ACQ Investor Relations
AUTO CANADA – STREET COVERAGE
Street Coverage
ANALYST PRICE TARGETS
Company
RBC
CIBC
Cannaccord
GMP
Clarus
Cormark
Median
Mean
Current Share Price
Implied Upside
ANALYST RECOMMENDATIONS
INVESTMENT HIGHLIGHTS
Price Target
$70.00 AutoNation
$71.00
$66.00
$90.00
Asbury
$78.00
$70.00
70.50
74.17 Penske Auto
41.65
78.1%
RBC Capital Markets
ACQ shares have traded lower in recent
months in lockstep with the price of oil.
We clearly acknowledge Auto Canada’s
dealer concentration in Alberta, but
believe the selloff has been sharply
overdone
CIBC Capital Markets
Sonic Auto
While ACQ shares have sold off
materially since oil started falling in the
summer, we believe the sell-off is
overdone. Deals should keep rolling in,
and the impact of lower oil prices
appears manageable. Our price target is
reduced to $71 (was $73) and we see
today's price as an attractive entry point.
ACQ remains rated SO
AutoCanada
Buy
Hold
Sell
Valuation in line with street consensus
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – COMPARABLES SUMMARY
Comparables Summary
17.8x
15.6x
Industry Average 12.8x
10.8x
11.2x
Asbury
23.8x
16.50%
7.00%
0.3x
9.40%
-
AutoNation
13.1x
15.60%
7.60%
0.3x
7.10%
-
12.2x
13.2x
13.8x
EV / 2014 EBITDA
EV/2014 LTM
LTM Gross Margin
LTM SSS Growth
Net Debt/LTM EBITDA
NTM Revenue Growth
Dividend Yield
AutoCanada
18.5x
48.30%
17.30%
0.5x
54.30%
2.35%
Carmax
14.8x
15.20%
12.00%
0.9x
10.90%
-
Group 1
15.4x
15.30%
21.80%
0.2x
42.90%
0.91%
Lithia
14.4x
15.00%
12.10%
0.3x
11.90%
0.68%
Penske
13.1x
14.60%
11.70%
0.2x
6.90%
2.03%
17.7x
17.7x
19.9x
Industry Average 15.7x
12.6x
17.5x
15.5x
13.0x
EV / 2014 EBITDA
ACQ trading at premium relative to peers
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – FOOTBALL FIELD
Football Field
Note, a football field is a visual
diagram used to illustrate and
benchmark the bear/bull scenarios
of each valuation method observed
against share price performance. By
doing so we can see that ACQ is
trading on the low end of valuation
estimates.
$91.72
$70.00
$66.41
$64.49
$51.00
$55.89
$48.00
Current Share Price $42.65
$38.00
$29.43
DCF Analysis
Premium (30%-50%)
Analyst Range
Comparable Companies
$31.32
52 Week Range
Target share price $51
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – TORNADO SCHEDULE
Tornado Schedule
Metric
Benchmark
Change
Impact on EV
Terminal Multiple
10.0x
-1.0x / 1.0x
WACC
9.00%
-% / %
Long Term Grow th
2.50%
-% / %
Tax Rate
0.26
-% / %
Chart Data
Terminal Multiple
WACC
Long Term Grow th
Tax Rate
Base EV
788.58
1,068.70
1,068.70
1,068.70
Rank
2
4
1
3
Sensitivity Range
Min
Max
(1.0x)
1.0x
(1.0%)
1.0%
(1.0%)
1.0%
(1.0%)
1.0%
($13)
$13
($107)
$146
($6)
($52)
$6
$52
EV
Min
736.56
1,062.69
961.99
1,055.58
Tornado Range
Max
840.60
1,074.96
1,214.22
1,081.39
Min
($52)
($6)
($107)
($13)
Max
$52
$6
$146
$13
Note, a tornado schedule is used as
a sanity check on one’s model
assumptions. Illustrated it indicates
which variable had the greatest net
positive/negative effect on implied
EV.
Tornado schedule suggests that SSS growth has the greatest positive net effect on EV
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – MODEL SUMMARY
Model Summary
Cost of Capital
Perpetuity Grow th
Terminal Value
PV of Cash Flow s
PV of Terminal Value
Enterprise Value
Less: Debt
Less: Pref Shares
Less: Minority Int.
Add: Cash
Equity Value
Shares Outstanding
Im plied per Share
TV as a % of Total
Low
11.00%
2.00%
851,850.47
268,362.97
532,610.79
$800,973.76
268
Base
9.00%
2.50%
1,179,485.26
268,362.97
800,337.71
$1,068,700.67
268
Bull
7.00%
3.00%
1,916,663.55
268,362.97
1,413,575.09
$1,681,938.06
268
52
$800,757.76
24103.67
$33.22
106%
52
$1,068,484.67
24103.67
$44.33
110%
52
$1,681,722.06
24103.67
$69.77
114%
Low
11.00%
8.0x
613,332.34
268,362.97
383,479.77
$651,842.74
268
Base
9.00%
10.0x
766,665.42
268,362.97
520,219.51
$788,582.48
268
Bull
7.00%
12.0x
919,998.50
268,362.97
678,516.04
$946,879.01
268
52
$651,626.74
24103.67
$27.03
94%
52
$788,366.48
24103.67
$32.71
97%
52
$946,663.01
24103.67
$39.27
97%
Key Assum ptions
Valuation Date
Projection Year
Currency
WACC
Terminal Multiple
Terminal Grow th
Target Tax Rate
3/23/2015
2014
C$
9.00%
10.0x
2.50%
26.00%
Tax Rate
Shares Outstanding
Cost of Capital
Terminal Multiple
Terminal Value
PV of Cash Flow s
PV of Terminal Value
Enterprise Value
Less: Debt
Less: Pref Shares
Less: Minority Int.
Add: Cash
Equity Value
Shares Outstanding
Im plied per Share
TV as a % of Total
Projections are far below analyst expectations
Sources: ACQ Investor Relations
AUTO CANADA – REVENUE PROJECTIONS
Revenue Projections
Revenue Schedule
2011
2012
2013
Total Revenue
Organic Growth (%)
6.99%
Less: Wholly-Ow ned Revenue
Calgary, Alberta (Courtesy Chrysler Dodge)
Stub period (July 1st, 2013)
Grand Prairie, Alberta (Grand Prairie Volksw agen)
Stub period (January 4th, 2013)
Winnipeg, Manitoba (St. James Audi)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (St. James Volksw agen)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge)
Stub period (April 1st, 2013)
Subtotal
2014
1,409,040
28,973
0.5
57,947
1
33,655
0.75
33,655
0.75
33,655
0.75
187,886
Less: Dealership investment revenue
Saskatoon, Saskatchew an (Saskatoon Motor Products)
Stub period (March 7th, 2013)
Prince Albert, Saskatchew an (Mann-Northw ay Auto Source)
Stub period (September 9th, 2013)
Subtotal
Total
55,220
0.67
27,610
0.33
82,831
270,716
2016
2017
1,507,532
1,612,908
1,725,651
1,846,274
1,975,328
Acquisition Grow th
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
2.00
1.00
1.00
4.00
3.00
2.00
1.00
2.00
8.00
2.00
3.00
1.00
2.00
8.00
3.00
2.00
1.00
2.00
8.00
3.00
2.00
2.00
7.00
Acquisition Revenue Contribution
British Columbia
Alberta
115,893.45
Saskatchew an
Manitoba
12,854.50
Ontario
35,198.00
Other
Total
163,945.95
143,839.67
115,893.45
12,854.50
70,396.00
342,983.62
95,893.11
173,840.18
20,707.67
70,396.00
360,836.96
143,839.67
115,893.45
12,854.50
70,396.00
342,983.62
143,839.67
115,893.45
70,396.00
330,129.12
1,671,477.85
1,955,892.00
2,086,487.63
2,189,257.27
2,305,457.30
18.6%
17.0%
6.7%
4.9%
5.3%
Total Revenue
1,138,324
8.42%
Revenue
1,009,326
Less: Dealership investment revenue
Sherw ood Park, Alberta (Sherw ood Park Chevrolet)
Stub period (June 30th, 2012)
Sherw ood Park, Alberta (Sherw ood Buick GMC)
Stub period (June 30th, 2012)
Duncan, British Columbia (Peter Baljet Chevrolet GMC Buick)
Stub period (March 30th, 2013)
Total
-
1,101,902
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
1,049,922
5.57%
994,551
2018
Organic Revenue
Implied Growth
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
2015
25,990
0.5
25,990
0.5
51,980
Organic revenue was first projected, followed by anticipated acquisition growth
AUTO CANADA – VALUATION SUMMARY
Valuation Summary
1,200
$100
$91.72
$90
1,000
$80
$70
800
$70.00
$66.41
$64.49
$60
$51.00
600
$51.00
$50
$55.89
$40
$48.00
Current Share Price $42.65
400
$48.00
$30
$38.00
$31.32
$29.43
DCF Analysis
Premium (30%- Analyst Range
50%)
Comparable
Companies
$10
52 Week Range
Assumptions
$20
200
$0
3/13/2014 5/13/2014 7/13/2014 9/13/2014 11/13/2014 1/13/2015 3/13/2015
DCF Analysis
SSS Growth
14.37%
Growth Rate
2%
Revenue/Dealer
$50,523
WACC
9%
Tax Rate
26%
COGS as a % of Rev
83%
Price Target
$51.00
Current Price
$41.65
Annualized Return
Running Case:
19.58%
Base
Returns reflect base case scenario
Sources: ACQ Investor Relations
ACIIC
APPENDIX
Team B-ACIIC
AUTO CANADA – DUPONT ANALYSIS
AUTO CANADA DuPont Analysis
THREE STEP DUPONT
STATISTICS
Three Step Method
Net Profit Margin
Asset Turnover
Equity Multipler
ROE
2010
0.02
3.33
3.17
17.72%
2011
0.04
3.02
2.96
32.57%
2012
0.02
2.68
3.3
19.44%
2013
0.03
2.28
3.25
20.08%
0.045
0.04
3
0.035
2.5
0.03
2
0.025
0.02
1.5
Five Step Method
Tax Burden
Interest Burden
EBIT Margin
Asset Turnover
Leverage
ROE
3.5
2010
0.74
0.71
0.03
3.52
3.04
17.97%
2011
0.75
0.85
0.06
3.39
3.05
37.67%
2012
0.74
0.79
0.04
2.96
3.14
20.38%
2013
0.74
0.90
0.04
2.74
3.27
24.28%
0.015
1
0.01
0.5
0.005
0
0
2010
2011
Asset Turnover
2012
Equity Multipler
2013
Net Profit Margin
FIVE STEP DUPONT
Tax Burden
2010
2011
Interest Burden
EBIT Margin
2012
Asset Turnover
2013
Leverage
Asset turnover decline questions asset efficiency
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – HISTORICAL BALANCE SHEET
Historical Balance Sheet
NET DEBT (CASH)
CASH AND CASH EQUIVALENTS
$123
$53
$38
$34
$36
-$6
-$11
2010
$66
$64
-$29
2011
2012
2013
2014
2010
TOTAL DEBT
2011
2012
2013
2014
REVOLVING DEBT AND INVENTORY
$438
$155
$472
$264 $278
$88
$204 $199
$126 $118
$26
$24
$161
$28
2010
2010
2011
$138
2012
2013
2014
2011
2012
Revolving Credit Facility
2013
2014
Inventory
2014 was a leap year in acquisitions
Sources: ACQ Investor Relations
ACIIC
AUTO CANADA – COMPARABLE COMPANIES ANALYSIS
Comparable Companies Analysis
Price /
(US$ millions, except per share data)
Price
Equity Value ($M)
Asbury Automotive
$75.35
Autonation
$60.81
Carmax
EV /
Enterprise Value ($M)
LTM EPS
FY1 EPS
FY2 EPS
LTM EBITDA
FY1 EBITDA
FY2 EBITDA
LTM Sales
FY1 Sales
FY2 Sales
Dividend Yield (%)
$2,075.2
$3,546.0
17.1x
14.8x
13.2x
14.8x
11.2x
10.4x
0.3x
0.3x
0.3x
-
$6,910.1
$12,053.5
17.3x
15.4x
13.9x
15.4x
12.7x
11.8x
0.3x
0.3x
0.3x
-
$62.16
$13,052.2
$21,684.3
25.5x
23.8x
21.3x
23.8x
20.1x
19.0x
0.8x
0.9x
0.8x
-
Group 1 Automotive
$76.81
$1,862.4
$4,292.9
12.7x
11.4x
10.3x
11.4x
11.7x
11.0x
0.2x
0.2x
0.2x
0.91%
Lithia Motors
$88.82
$2,333.7
$4,128.4
17.0x
14.4x
12.8x
14.4x
12.1x
11.0x
0.3x
0.3x
0.3x
0.68%
Penske Automotive
$48.61
$4,389.5
$8,469.1
15.0x
13.1x
12.0x
13.1x
13.2x
12.2x
0.2x
0.2x
0.2x
2.03%
'
'
'
'
17.4x
'
15.5x
'
13.9x
'
15.5x
'
13.5x
'
12.6x
'
0.4x
'
0.4x
'
0.4x
'
1.21%
$42.60
$819.9
$1,285.3
20.0x
18.5x
13.8x
18.5x
17.1x
11.9x
0.3x
0.5x
0.3x
2.35%
Automobile Dealers
Average
AutoCanada
Margins
(US$ millions, except per share data)
Price
Equity Value ($M)
Asbury Automotive
$75.35
Autonation
$60.81
Carmax
Revenue Growth
EBITDA Growth
Enterprise Value ($M)
SSS Growth
Net Debt/EBITDA
Gross
EBITDA
LTM
NTM
LTM
NTM
ROE
ROIC
$2,075.2
$3,546.0
7.00%
0.3x
16.50%
5.10%
9.99%
9.40%
14.59%
8.12%
23.86%
9.20%
$6,910.1
$12,053.5
7.60%
0.3x
15.60%
4.80%
9.08%
7.10%
10.71%
5.70%
20.26%
7.10%
$62.16
$13,052.2
$21,684.3
12.00%
0.9x
15.20%
7.20%
12.10%
10.90%
8.51%
16.09%
17.11%
5.08%
Group 1 Automotive
$76.81
$1,862.4
$4,292.9
21.80%
0.2x
15.30%
4.90%
34.56%
42.90%
26.76%
28.10%
8.88%
4.99%
Lithia Motors
$88.82
$2,333.7
$4,128.4
12.10%
0.3x
15.00%
3.30%
18.92%
11.90%
16.38%
12.60%
22.97%
7.41%
Penske Automotive
$48.61
$4,389.5
$8,469.1
11.70%
0.2x
14.60%
3.90%
11.43%
6.90%
19.80%
-7.00%
18.16%
6.19%
'
'
'
'
'
'
'
'
'
'
'
'
'
12.03%
0.4x
15.37%
4.87%
16.01%
14.85%
16.13%
14.12%
18.54%
6.66%
17.30%
0.5x
48.30%
4.83%
42.00%
54.30%
46.60%
61.80%
33.88%
7.62%
Automobile Dealers
Average
AutoCanada
$42.60
P/E LTM
P/E FY1
P/E FY2
EV/EBITDA LTM
EV/EBITDA FY1
EV/EBITDA FY2
Average Implied Share Price
$819.9
Low
12.7x
11.4x
10.3x
11.4x
11.2x
11.0x
$1,285.3
Multiple
Mean
17.4x
15.5x
13.9x
15.5x
13.5x
12.6x
High
25.5x
23.8x
21.3x
23.8x
20.1x
19.0x
Metric
$2.31
$2.50
$3.35
$88.47
$95.71
$137.54
Price/Share
Low
Mean
$29.34 $40.19
$28.50 $38.75
$34.51 $46.57
$20.35 $35.15
$22.94 $31.92
$40.94 $49.92
$29.43 $40.42
High
$58.91
$59.50
$71.36
$65.13
$57.70
$85.85
$66.41
ACIIC
AUTO CANADA – DISCOUNTED CASH FLOW
Discounted Cash Flow Analysis
Revenue
Growth (%)
COGS
Gross Profit
Margin (%)
SG&A
as a % of Revenue 83.00%
2014
$1,671,477.85
18.6%
1,387,326.62
2015
$1,955,892.00
17.0%
1623390.357
Projection Period
2016
$2,086,487.63
6.7%
1731784.733
2017
$2,189,257.27
4.9%
1817083.537
2018
$2,305,457.30
5.3%
1913529.561
as a % of Revenue 13.00%
284,151.23
17.0%
217,292.12
332,501.64
17.0%
254,265.96
354,702.90
17.0%
271,243.39
372,173.74
17.0%
284,603.45
391,927.74
17.0%
299,709.45
66,859.11
4.0%
78,235.68
4.0%
83,459.51
4.0%
87,570.29
4.0%
92,218.29
4.0%
66,859.11
17,383.37
78,235.68
20,341.28
83,459.51
21,699.47
87,570.29
22,768.28
92,218.29
23,976.76
49,475.74
12,382.58
7,537.66
-
57,894.40
13,715.92
8,064.54
-
61,760.03
15,142.46
8,628.25
-
64,802.02
16,668.71
9,231.37
-
68,241.54
18,301.65
9,876.64
-
54,320.67
0.5
0.96
52,029.77
63,545.78
1.5
0.88
55,840.20
68,274.24
2.5
0.81
55,041.55
72,239.36
3.5
0.74
53,429.50
76,666.54
4.5
0.68
52,021.95
2013A
$1,409,040.00
EBITDA
Margin (%)
Depreciation & Amortization
EBIT
Taxes
target tax rate 26.00%
EBIAT
Plus: Depreciation & Amortization
Less: CAPEX
Less: Change in WC
WACC 9.00%
Unlevered Free Cash Flow s
Discount Period
Discount Factor
PV of Future Cash Flow s
Model Inputs
Key Assum ptions
Valuation Date
Projection Year
Currency
WACC
Terminal Multiple
Terminal Grow th
Target Tax Rate
3/23/2015
2014
C$
9.00%
10.0x
2.50%
26.00%
AUTO CANADA – DISCOUNTED CASH FLOW
Discounted Cash Flow Analysis
SENSITIVITY
$1,068.70
8.00%
1074.96
8.50%
1071.80
WACC
9.00%
1068.70
9.50%
1065.66
10.00%
1062.69
$788.58
9.0x
736.56
9.5x
762.57
Terminal Multiple
10.0x
788.58
10.5x
814.59
11.0x
840.60
$1,068.70
1.50%
961.99
2.00%
1011.53
Grow th in Perpetuity
2.50%
1068.70
3.00%
1135.40
3.50%
1214.22
$1,068.48
25.00%
1081.39
25.50%
1074.94
Tax Rate
26.00%
1068.48
26.50%
1062.03
27.00%
1055.58
$44.33
1.5%
2.0%
2.5%
3.0%
3.5%
8.00%
$40.16
$38.36
$38.36
$40.16
$44.59
8.50%
$40.29
$38.50
$38.50
$40.29
$44.72
WACC
9.00%
$40.29
$38.50
$38.50
$40.29
$44.72
9.50%
$40.16
$38.36
$38.36
$40.16
$44.59
10.00%
$39.90
$38.10
$38.10
$39.90
$44.33
$32.71
8.0%
8.5%
9.0%
9.5%
10.0%
9.0x
$31.37
$30.96
$30.55
$30.15
$29.77
9.5x
$30.25
$29.85
$29.47
$29.10
$28.73
Terminal Multiple
10.0x
$30.25
$29.85
$29.47
$29.10
$28.73
10.5x
$31.37
$30.96
$30.55
$30.15
$29.77
11.0x
$33.62
$33.16
$32.71
$32.27
$31.84
AUTO CANADA – HISTORIC REVENUE
Historic Revenue
Revenue Schedule
2011
2012
2013
Total Revenue
Organic Growth (%)
6.99%
Less: Wholly-Ow ned Revenue
Calgary, Alberta (Courtesy Chrysler Dodge)
Stub period (July 1st, 2013)
Grand Prairie, Alberta (Grand Prairie Volksw agen)
Stub period (January 4th, 2013)
Winnipeg, Manitoba (St. James Audi)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (St. James Volksw agen)
Stub period (April 1st, 2013)
Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge)
Stub period (April 1st, 2013)
Subtotal
1,409,040
28,973
0.5
57,947
1
33,655
0.75
33,655
0.75
33,655
0.75
187,886
Less: Dealership investment revenue
Saskatoon, Saskatchew an (Saskatoon Motor Products)
Stub period (March 7th, 2013)
Prince Albert, Saskatchew an (Mann-Northw ay Auto Source)
Stub period (September 9th, 2013)
Subtotal
Total
55,220
0.67
27,610
0.33
82,831
270,716
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
1,138,324
8.42%
Revenue
1,009,326
Less: Dealership investment revenue
Sherw ood Park, Alberta (Sherw ood Park Chevrolet)
Stub period (June 30th, 2012)
Sherw ood Park, Alberta (Sherw ood Buick GMC)
Stub period (June 30th, 2012)
Duncan, British Columbia (Peter Baljet Chevrolet GMC Buick)
Stub period (March 30th, 2013)
Total
-
1,101,902
Adjusted total organic revenue
Adjusted adjusted organic revenue grow th
1,049,922
5.57%
994,551
25,990
0.5
25,990
0.5
51,980
AUTO CANADA – GEOGRAPHIC DATA
Geographic Data
Geographic Data
Location of Dealership
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
# of Dealerships
9
11
0
0
3
5
Location of Dealership
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
# of Dealerships
9
9
0
0
3
3
Location of Dealership
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Total
# of Dealerships
9
9
0
0
3
3
28
Year Ended Decem ber 31, 2013
Revenue
% of Total Revenue
431,519
31%
637,414
45%
105,594
7%
234,513
17%
1,409,040
100%
24
Year Ended Decem ber 31, 2012
Revenue
% of Total Revenue
405,500
37%
467,819
42%
92,110
8%
136,473
12%
1,101,902
100%
24
Year Ended Decem ber 31, 2011
Revenue
% of Total Revenue
359,725
36%
411,440
41%
107,719
11%
130,442
13%
1,009,326
100%
Revenue/Dealership
47,947
57,947
35,198
46,903
187,994
Revenue/Dealership
45,056
51,980
30,703
45,491
173,230
Revenue/Dealership
39,969
45,716
35,906
43,481
165,072
Acquisition Data
Location of Dealerships
British Columbia
Alberta
Saskatchew an
Manitoba
Ontario
Other
Average
Revenue
44,324
51,881
33,936
45,291
EBIT Margin/
Dealership
1,705
1,996
1,306
1,743
Net Income/
Dealership
1,264
1,479
967
1,291
Annual EPS/
Dealership
$0.06
$0.07
$0.05
$0.06
