MNRO - Monro Inc

[kab60]

Does anyone have a thesis on this auto repair and tire sales company? I have followed for years but I never understood the valuation. Sure, fragmented market, possible to roll up, but economics (ROIC) doesn't look great nor does organic growth. It's probably resilent but what's the secular trend I missed? Electric cars and SUVs heavy and thus more tires changed than historic levels (lol)?

[Okonomen]

Also had it on my radar for years, but I don't really like the fundamental economics in it, i.e. the M&A and the low ROIC...

[Okonomen]

take a look at Valvoline instead :) Been crushed by the corona panic and they post +30% roic with a great motor oil brand and they got a nice growing quick lube franchise. trading crazy cheap atm around 10x normalized earnings ex 2020 impact

[BG2008]

My only hang up with Valvoline is that it is widely known in the industry that as we migrate to electric vehicle, oil changes will be a thing of the past.  With synthetics oils, Valvoline and other oil change chains are already facing the challenge of longer intervals between oil changes and less frequent visits.  Organic volume/trip will likely decline over time.  Per visit value will likely go up.  Not sure if I want to own something potentially terminal like this.  Once people buy into that it is potentially terminal, it never really trades at a decent multiple.  That's the risk. 

[RVP]

I think they're counter-cyclical, as their business is driven by servicing older cars (which theoretically should increase in a weak economy as customers hold off on new purchases). So recent years margins should be somewhat subdued. But this dynamic might not play out in the current downturn, since much of society and driving seems to have gone into hibernation for now.

[kab60]

Lots of good points. Agree on the countercyclical aspect, but then something like Autozone has way superior economics (and track record) with negative working capital, negative equity and plus 30 pct ROIC, so whenever I look at Monro I get confused and feel like I have missed something.

 

I follow Valvoline and agree it looks interesting, but as BG2000 said terminal value is a bit more difficult to assess even though I think the EV threat is overstated - at least in the states where people like trucks and SUV's. They could use an activist to split up the Company and seperate retail from oil business.

 

Straying from auto but sticking with retail, at these levels I'd also rather go with something like Ulta which isn't more expensive (ev/ebitda) but might actually benefit from even faster market share growth due to collapsing malls. And I don't see any terminal threats.

 

I'm long some well run auto retailers. Even though economics are worse than Azo, VVV etc, they can be quiet good and valuations are low while service makes it resilent.

 

Thanks for the input, still feel like something is missing considering Monro recently traded at 36xearnings...

[Okonomen]

What auto names areu talking about kab?

 

And seriously don't worry about EV's. They make up 0% of the american car fleet and as a Dane I can tell you that EV's absolutely suck compared to ICE, and at the end of the day from production to scrap an EV produces 2/3 of co2 as an ICE, so all these auto OEM's are crazy overinvesting in this stuff just due to political push because there are votes to win in being "eco friendly". But at the end of the day, less than 10% of human co2 emissions come from transport, and that's including ship, air, train! In 10 years EV's will still make up close to 0% of the US car fleet. I'm not worried

[Spekulatius]

What auto names areu talking about kab?

 

And seriously don't worry about EV's. They make up 0% of the american car fleet and as a Dane I can tell you that EV's absolutely suck compared to ICE, and at the end of the day from production to scrap an EV produces 2/3 of co2 as an ICE, so all these auto OEM's are crazy overinvesting in this stuff just due to political push because there are votes to win in being "eco friendly". But at the end of the day, less than 10% of human co2 emissions come from transport, and that's including ship, air, train! In 10 years EV's will still make up close to 0% of the US car fleet. I'm not worried

 

Personally, I think you got this blatantly wrong, but time will tell. I also looked at VVV, but the balance sheet and pension deficit have kept me away.

[kab60]

What auto names areu talking about kab?

 

And seriously don't worry about EV's. They make up 0% of the american car fleet and as a Dane I can tell you that EV's absolutely suck compared to ICE, and at the end of the day from production to scrap an EV produces 2/3 of co2 as an ICE, so all these auto OEM's are crazy overinvesting in this stuff just due to political push because there are votes to win in being "eco friendly". But at the end of the day, less than 10% of human co2 emissions come from transport, and that's including ship, air, train! In 10 years EV's will still make up close to 0% of the US car fleet. I'm not worried

Well, I tend to agree EV's are overhyped and that people overestimate how fast new tech is deployed, but I think they'll play a major role further down the road. But there'll be room for ICE vehicles, and either way the average age of cars on the road in the US is like 12 years I believe, so it'll take a long time before it makes a significant dent - if it does.

 

I'm currently invested in Vertu Motors and Cambria Automobiles in the UK, but I also like Auto Nation and Asbury Automobiles in the US. They're just significantly more leveraged and more expensive.