Thanks for the write up! What is your take on the quality of their UK business and how that added complexity of managing another geography impacts their growth and valuation relative to a US only dealer like ABG?
Apologies - somehow missed your question. I don’t hate GPI’s UK business but I definitely don’t love it either. The Inchcape acquisition allowed them to get much bigger in the UK and maybe provides some small scale advantages. I would have preferred to see them do the reverse and divest UK like they did Brazil. But, UK dealer valuations are very low currently, so it probably would not have been the ideal time to be a seller - so being a buyer that maybe wasn’t too bad.
As a separate note, I don’t really like GPI’s recent increased acquisition activity. Besides 2010-2019 Lithia buying underperforming dealers and turning them around, being a big buyer really has not worked too well in the dealer world. Generally, dealers seem to pay too much relative to what they could simply get repurchasing their own stock. Increasing EPS is what matters ultimately, even if it means little-to-no revenue growth by focusing on share repurchases. I still own GPI stock in pretty large size (also own AN) but we’ll see what the future holds. At current valuations, I don’t expect super high returns like I did when I wrote this article in 2022.
Thanks for the write up! What is your take on the quality of their UK business and how that added complexity of managing another geography impacts their growth and valuation relative to a US only dealer like ABG?
Apologies - somehow missed your question. I don’t hate GPI’s UK business but I definitely don’t love it either. The Inchcape acquisition allowed them to get much bigger in the UK and maybe provides some small scale advantages. I would have preferred to see them do the reverse and divest UK like they did Brazil. But, UK dealer valuations are very low currently, so it probably would not have been the ideal time to be a seller - so being a buyer that maybe wasn’t too bad.
As a separate note, I don’t really like GPI’s recent increased acquisition activity. Besides 2010-2019 Lithia buying underperforming dealers and turning them around, being a big buyer really has not worked too well in the dealer world. Generally, dealers seem to pay too much relative to what they could simply get repurchasing their own stock. Increasing EPS is what matters ultimately, even if it means little-to-no revenue growth by focusing on share repurchases. I still own GPI stock in pretty large size (also own AN) but we’ll see what the future holds. At current valuations, I don’t expect super high returns like I did when I wrote this article in 2022.