HL SELECT UK GROWTH SHARES
HL SELECT UK INCOME SHARES

BCA shares bounce on takeover approach

Managers' thoughts

Important information - The value of this fund can still fall so you could get back less than you invested, especially over the short term. The information shown is not personal advice and the information about individual companies represents our view as managers of the fund. It is not a personal recommendation to invest in a particular company. If you are at all unsure of the suitability of an investment for your circumstances please contact us for personal advice. The HL Select Funds are managed by our sister company HL Fund Managers Ltd.

Steve Clayton - Fund Manager

4 July 2018

BCA Marketplace is in the spotlight at the moment after the announcement of a takeover offer by private equity firm, Apax, caused a sharp increase in the share price.

BCA is an Automotive Services group, best known for its ownership of British Car Auctions and WeBuyAnyCar.com. Respectively they are the dominant force in trade sales of vehicles and the fast growing car buying service.

We hold the BCA shares because an auctioneer with a dominant share in a market that has a steady pace of activity is a great source of cash flow. Auctioneers don’t typically own the vehicles (although WeBuyAnyCar.com does briefly), they just take a commission on the sale.

Facilities are also simple affairs - plenty of parking space and an auction ring, so they require little ongoing investment. When the car market is strong, dealers have plenty of trade-ins to pass on, and when it’s bad, dealers want to offload stock. In short, under most realistic circumstances, a business like BCA should generate cash in reliable quantities.

Apax approach

Apax obviously think so too. So far they’ve made what looks like nothing more than an opening shot, an offer of 200p per share, made back in early May, but only revealed around a month later.

By the time Apax announced that they had made an approach, the shares were already trading around the 200p level, having had a good run in recent weeks. We hold quite significant positions in BCA on both the HL Select funds and when the news broke on Monday 11th the shares leaped higher, rising from around the 210p level to a peak of 240p in a matter of minutes.

That jump propelled BCA into becoming one of the larger positions in both funds. We took the decision to lock in some of the profit and sold around a third of the holdings, achieving an average price of 237.6p.

What happens next?

We are now in a position of wait and see. The stock has retreated to a level of around 225p, and the combination of that and the disposal of approaching 30% of our holding has left us with weightings of circa 3.5%.

If a bid at a higher level emerges, we think those holdings will generate further gains. If Apax in fact decide to walk away, and no other bidder appears (Clayton Dubillier & Rice (no relation!) have been mentioned as interested in the press) then the shares may well drop back toward their pre-bid levels, but we will still have been able to bank a significant gain on the shares we sold.

The company released full year results on 28 June and we met with the Chairman and Finance Director that day to discuss progress. As far as the bid situation goes, BCA view the ball as firmly in Apax’s court; their initial offer was seen as inadequate and they have until 8 July to make a revised proposal, or walk away under Takeover Panel rules, known as “Put Up or Shut Up”.

Meanwhile BCA is in fine form

The business itself is in fine form. Full year sales rose 20%, adjusted profits by 24% and the dividend jumped 27%. Growth came from both the Auctions business in the UK and Europe, along with double digit expansion at WeBuyAnyCar.com. The group also paid down debt during the year and BCA is in a strong position with the balance sheet as a result.

The day before the results the group had announced a big new multi-year deal with BMW that will see BCA providing a huge range of services to the BMW group as their vehicles come to the end of leases and PCP plans, involving transportation, remarketing (auctions to you and me) and refurbishments if needed.

It’s the biggest such contract BCA have ever signed and the group hope to repeat the arrangements with other manufacturers and leasing companies.

Strategy on track

We took it as evidence that BCA’s strategy of bringing a whole range of services to the automotive sector, over and above the core remarketing role, is capable of delivering real growth and value over time.

The group have been pushing further into digital products, with apps and systems to link dealers ever closer to the remarketing operations, shortening the time between dealers accepting a part-ex and turning it into cash at auction. That keeps dealers capital requirements down and increases BCA’s value to them.

Automotive Services may not be the most glamorous of industries, involving car transporters, dent repairs and auction rings. But BCA are showing that it can generate strong growth, backed by cash flows. Whether a bid at a higher level emerges or not, we are very happy to retain exposure to the group.

More about HL Select UK Growth Shares

More about HL Select UK Income Shares

Non-Independent Research Disclosure

The information on this website is not intended to be advice or a recommendation to buy, sell or hold any investment mentioned. No view is given as to the present or future value or price of any investment, and investors should form their own view in relation to any proposed investment.

Any information which could be construed as “investment research” has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.

The research material provided on our website is not an offer to buy or sell any of the stocks mentioned. Hargreaves Lansdown accepts no responsibility for any use made of these comments and for any consequences that may result. We cannot guarantee the accuracy or completeness of the information provided and consideration has not been given to the personal circumstances of any investor. Therefore any person acting on it does so entirely at their own risk and must assess the suitability of any investment for their own personal circumstances and individual investment objectives. It is not a personal recommendation.

Although we are not specifically constrained from dealing ahead of any research material we do not seek to take advantage of it before it is provided to our clients. We aim to establish and maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of our clients (including restrictions on dealing for writers of equity commentary).

Hargreaves Lansdown Fund Managers Ltd (HLFM) manages funds that may hold investments which are the subject of commentary prepared and published by other parts of the Hargreaves Lansdown group. Accordingly, appropriate organisational and administrative controls (including physical and information barriers, known as “Chinese Walls”) are in place between different parts of our business, including our marketing and fund management functions, in order to manage these potential conflicts of interest. For more information please see our Conflicts of Interest policy. HLFM currently manages three funds which hold individual equity securities. Details of the significant shareholdings held by these funds can be found here for the HL Select UK Growth Shares fund, here for the HL Select UK Income Shares fund and here for the HL Select Global Growth Shares fund. Hargreaves Lansdown (Nominees) Limited holds individual securities as nominee on behalf of underlying clients of Hargreaves Lansdown, and does not exercise control over or hold the beneficial ownership of these securities.

We do not intend to provide recommendations to buy, sell or hold particular investments, nor do we provide price targets. Our opinions on particular investments (and the facts underlying them) are valid as at the date of publication, but can change at any time, and we may not update our views on any particular investment on a regular basis. Accordingly such opinions and facts may become outdated or obsolete after the date of publication.

Issued by Hargreaves Lansdown Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority (FCA Register number 115248, see FCA register for registration details) and registered in England and Wales No 1896481. Registered office: 1 College Square South, Anchor Road, Bristol BS1 5HL.

for more information. Unless otherwise stated performance figures are from Bloomberg and estimates, including prospective yields, are a consensus of analyst forecasts from Bloomberg. They are not a reliable indicator of future performance. Yields are variable and not guaranteed.