Jeff Smith's Sohn Canada Presentation: Long Advance Auto Parts ~ market folly

Thursday, October 1, 2015

Jeff Smith's Sohn Canada Presentation: Long Advance Auto Parts

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jeff Smith from Starboard Value.  The activist investor revealed a new long of Advance Auto Parts (AAP).

Jeff Smith's Capitalize For Kids Presentation

-    Long Advance Auto Parts (AAP)
-    They look for value, plan, path
-    See stock going from $171.40 to >$350
-    Specialty retailer of aftermarket automotive parts
-    Have two divisions retail stores to buy parts and commercial distribution business for garages to buy parts
-    They are seeing consolidation in the industry
-    Cars are getting older and more complicated, seeing consumers taking cars to auto shops to fix their cars versus self-fix due to this.
-    SSS growth in all markets over last few years, yet AAP has underperformed by 295% vs peers
-    Peers have more retail which is known as higher margin business but this may be misunderstood
-    AAP does have a margin problem but not a revenue problem
-    There is a 800bp gap between margins in EBITDA to competitors (or as he put it best in class margins)
-    It is trading at 10x, 6.3x proforma, peers at 12x
-    Thesis: 600-740bp margin improvement, fix NWC. Grow SKU count to provide better service and get first calls from customers. Increase leverage from 1.1x to 2.5x. Consolidation and returning cash for further returns.

We already posted up Smith's slideshow presentation on AAP as well.

Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.

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