What Makes Asbury Automotive Group (ABG) the Best Investment Option?
Silver Beech Capital, a value-oriented investment management firm, released its second quarter 2023 investor letter. A copy of the same can be downloaded here. Year-to-date, the fund returned 14.1% compared to 14.5% for the S&P 500 Index and 4.4% for the Russell 2000 Index. The fund generated strong absolute and relative returns. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Silver Beech Capital highlighted stocks like Asbury Automotive Group, Inc. (NYSE:ABG) in the second quarter 2023 investor letter. Headquartered in Duluth, Georgia, Asbury Automotive Group, Inc. (NYSE:ABG) is a US-based automotive retailer. On July 14, 2023, Asbury Automotive Group, Inc. (NYSE:ABG) stock closed at $243.26 per share. One-month return of Asbury Automotive Group, Inc. (NYSE:ABG) was 9.68%, and its shares gained 50.83% of their value over the last 52 weeks. Asbury Automotive Group, Inc. (NYSE:ABG) has a market capitalization of $5.238 billion.
Silver Beech Capital made the following comment about Asbury Automotive Group, Inc. (NYSE:ABG) in its second quarter 2023 investor letter:
"Asbury Automotive Group, Inc. (NYSE:ABG) is a mid-capitalization company and one of the largest automotive retailers based in the United States. Asbury operates 190 franchises located primarily in southeastern and southwestern metropolitan markets. The retail automotive industry is highly fragmented, however Asbury has generated outstanding ~20% compounded returns for shareholders over the last ten years. We believe the factors that helped the company achieve this success remain in place today and that Asbury’s intrinsic value exceeds its June 30 share price by more than 40%.
Asbury’s success resulted from nearly doubling its franchise footprint in the past 10 years from 98 franchises to 190 franchises (152 dealerships / 38 collision centers). Asbury profitably doubled its footprint by acquiring and integrating franchises at attractive prices. To underline the scale of Asbury’s capital deployment: in 2012 the company had ~$1.4 billion of capital deployed, by 2022 this figure had grown 5x to ~$7.4 billion. Clearly, Asbury saw an attractive opportunity in franchise acquisitions.
Asbury has an operations playbook for its new acquisitions that (i) improve franchise operating efficiency (more inventory turns, floorplan financing, geographical clustering within a market for scales of economy); and (ii) sell higher margin and less cyclical lines of business (parts/services and finance/insurance products). Based on our studies of Asbury’s acquisitions and financial history, we estimate that Asbury’s after-tax incremental returns on capital were ~13%+. Asbury’s historically high debt levels helped turn ~13% incremental returns on capital into greater than 20% incremental returns on equity. Attractive capital deployment, high reinvestment rates, and leverage drove returns..." (Click here to read the full text)
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Asbury Automotive Group, Inc. (NYSE:ABG) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held Asbury Automotive Group, Inc. (NYSE:ABG) at the end of first quarter which was 26 in the previous quarter.
We discussed Asbury Automotive Group, Inc. (NYSE:ABG) in another article and shared Black Bear Value Partners’ views on the company. In addition, please check out our hedge fund investor letters Q2 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
