AOCIF - AutoCanada: Covenant Car Wreck To Cause Dividend Cut
All amounts in Canadian dollars unless otherwise specified
Summary Investment Thesis
AutoCanada (“ACQ”) offers potential downside of 100% from its current price of $9.74. A potent combination of operational challenges related to a large, ill-conceived, U.S. acquisition, a slowdown of auto sales in Canada, and extreme financial leverage has resulted in ACQ resorting to last ditch measures (i.e. sale-leaseback transactions) in order to remain onside with its bank covenants.
I believe ACQ has exhausted these measures and that the one-time gains will roll-off in Q2 2019 or Q3 2019, resulting in covenant breaches. The company's