Uni Select Inc.’s (TSX:UNS) results release show a sales increase of 12.3% in the fourth quarter of 2016 with FinishMaster’s sales increasing 17.7%. FinishMaster represented 62% of total sales in the quarter. The increase is mainly attributed to recent acquisitions, which, for the most part, have already been successfully integrated. The company added 16 stores through four acquisitions: three in Canada and one in the U.S., plus one Greenfield store opening in the U.S.
More good news came out of Canada with a positive organic growth rate of 1% after a challenging environment that had seen organic growth stall.
Margin improvements
Adjusted EBITDA margins came in at a strong 8.7% and is evidence of how far management has come in its strategy of consolidating its market and creating value through synergies. Back in 2014 and 2015, margins were below 5%. Gross margin also continues to edge higher, coming in at 30.3% in the quarter versus 30.1% in the fourth quarter of 2015. Management attributed this to better buying conditions as well as the impact of the accretive acquisitions that were made in both segments.
Strong balance sheet and cash flow
The company’s strong balance sheet, with a debt-to-capital ratio of 25%, has been maintained, leaving it in an enviable position to make further acquisitions. And management sees a robust pipeline, so this flexibility is of great value in enabling the company to continue to move forward with its plans.
Similarly, cash flows generated continue to be strong. Cash flow from operations came in at $20.9 million in the quarter compared to $15.5 million in the fourth quarter of 2015 for a healthy increase of 26%.
Future opportunities
There remains a robust acquisition pipeline and good organic growth opportunities. Uni-Select’s major customer is collision repair centres, and this market is seeing a lot of consolidation. This is similar to the paint market, which remains highly fragmented. FinishMaster currently holds 25% of the market, and management believes there is much room to grow to add to this current market share position.
Right now, it bears repeating that the company has made over 70 acquisitions of various sizes over the last 10 years and has been very successful in the integration of these acquisitions, so I believe that the company will be successful in consolidating its markets. The track record of management is good, and this is a key factor contributing to the quality of this company.
In summary, I reiterate my view that this company represents good value and continues to be a steady, high-quality company that investors can expect to continue to do well with. At the time of writing, the stock is up almost 3% off the results.
