Driven Brands looks well positioned for future growth (NASDAQ:DRVN)

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Driven Brands (DRVN) went public in January 2021, raising $700 million in gross proceeds in an IPO at a price of $22.00 per share.

The company provides a range of maintenance and repair services for automobiles in the United States.

As the Covid-19 pandemic abates and inflation plateaus and then declines in the coming quarters (in my view), DRVN looks well positioned to continue its growth trajectory.

My medium term outlook on DRVN at around $29.00 is a buy.

Company

Driven Brands, based in Charlotte, North Carolina, was founded to develop a lean business model in company-owned and franchised commercial and consumer automotive service services assets.

Management is led by President, CEO and Director Jonathan Fitzpatrick, who has been with the company since 2021 and previously held various leadership positions at Burger King Corporation.

The company’s main offerings include:

The Company advertises its various brand offerings through a combination of traditional, digital and offline advertising, as well as by locating its stores in areas visible to heavy road traffic.

DRVN has a total base of 4,100 company-owned and franchised locations in the United States (49 states) and 14 other countries.

Driven market and competition

According to a 2020 market research report by First Research, the global automotive repair and maintenance services market is expected to grow at a double-digit compound annual growth rate from 2015 to 2025.

A major source of the expected growth will come from growing vehicle production in emerging markets such as India and China.

The US auto repair industry is currently valued at approximately $115 billion in annual revenue and is highly fragmented, with approximately 162,000 establishments, both single-location businesses and multi-location businesses.

It is estimated that the 50 largest repair and maintenance companies account for less than 10% of total turnover.

The company faces significant competition from a variety of sources:

Recent Financial Performance of DRVN

Total turnover over 5 quarters

Total revenue over 5 quarters (Seeking Alpha and The Author)

Gross profit over 5 quarters

Gross profit over 5 quarters (Seeking Alpha and The Author)

Operating profit over 5 quarters

Operating result over 5 quarters (Seeking Alpha and The Author)

Earnings per share over 5 quarters

Earnings per share over 5 quarters (Seeking Alpha and The Author)

(Source data for GAAP financial tables above)

Over the past 12 months, DRVN’s stock price has fallen 6.1% against the 11.2% rise in the US S&P 500 index, as shown in the chart below:

52 week stock prices

52 week stock price (seeking alpha)

(Source)

Evaluation metrics for DRVN

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Rising

Market capitalization

$4,830,000,000

Enterprise value

$7,620,000,000

Price/Sales

3.16

Enterprise Value/Sales

5.19

Enterprise value / EBITDA

9:43 p.m.

Free movement of capital [TTM]

$218,910,000

Revenue growth rate [TTM]

62.27%

Earnings per share

$0.04

(Source)

Motivated Marks Commentary

In its latest earnings call, covering fourth quarter 2021 results, management highlighted both its diverse revenue streams as well as its diverse go-to-market model where it can “build, but or franchise” as it pleases. .

Additionally, its asset-light business model generates strong cash flow and allows the company to reduce the impacts of inflation on its operations.

Additionally, its scale and public currency, compared to many smaller local players, gives DRVN an edge.

As for its financial results, revenue grew 36% and the company added 247 net new stores in fiscal 2021.

However, management focused on Adjusted EBITDA and EPS which are different and more optimistic than GAAP figures.

Going forward, management plans to focus its priorities on its Driven, Quick Lube, car wash and glass segments.

He likes these companies because of their “simple operating models, highly fragmented competition, significant white space in terms of unit growth, and very strong economics at the unit level.”

The company’s M&A pipeline has been described as “robust, and we are aggressively growing our footprint.”

The main risk to the company’s outlook is a labor shortage, although management said it had “largely overcome the effects of the national labor shortage”.

Additionally, as the economy improves post-Covid, M&A opportunities may be fewer and more expensive, increasing one’s acquisition budget as target companies perform better and seek higher valuation multiples. students.

A potential catalyst on the upside is that since the company’s revenue comes primarily from franchises, as the economy improves there may be more growth in this segment as potential franchisees decide to open. a first store or expand their existing footprint.

Overall, DRVN has performed very well during a difficult period and is ahead of its pre-IPO projections.

As the Covid-19 pandemic abates and inflation plateaus and then declines in the coming quarters (in my view), DRVN looks well positioned to continue its growth trajectory.

My medium term outlook on DRVN at around $29.00 is a buy.

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