AutoCanada updated August 31, 2019

Autocanada is updated and now rated Speculative (lower) Buy at $8.45.

In their Q2 report recently released there is a lot of improvement. Higher sales and gross profits. It appears that they have turned the corner on losses and should be profitable going forward at least excluding any unusual items and writeoffs. Based on analyst forecast earnings the forward P/E is shown as 6.3 which is attractive if it can be believed. And the price to book value ratio is attractive at 0.62. But on a trailing year basis they were still losing money. The 2018 U.S. acquisition continues to lose money. The new (as of mid 2018) management seems very optimistic. It is even possible that they could get a take-over offer since a group of auto dealers is probably an attractive business for private equity and certain pension funds.

They still face the headwinds of a slower auto market in Canada (but they managed growth in Q2 despite that) and the losses in the U.S. division but the Canadian dealers are profitable and improving.

Given the poor performance of this company (partly due to lower industry sales but mostly due to the former management’s disastrous and inexplicable U.S. acquisition where they paid $132 million for a bunch of money-losing leased dealerships) and given some possibility that their debt and lease obligations will cause problems, I am reluctant to add much to my position (I had sold I believe about half of my position back in March when I rated it Sell at $11.83 which was disappointing having previously thought it was a buy at much higher prices). Still, I may be tempted at this price given the numerous improvements seen in the latest quarter.