Alimentation Couche-Tard Inc.
Cir-K-ling the year: Q4/F22 results in line with consensus, shy of forecast
Our view: ATD delivered solid Q4/F22 results with adjusted EPS $0.55 +6% Y/Y, consensus $0.52, RBCCM E $0.62. GP $$ essentially as forecast, but individual segment SSS/margin trends mixed. Gap to EBITDA/EPS reflects surge in opex, including utility costs in Europe. ATD is hyper-focused on executing on strategies to drive SSS, mix and margins to deliver to its $5.1B EBITDA target in F23, LTM EBITDA stable @ $5.1 B, supported by strong gas margins. Dividend +25%, active on NCIB. Forecasts essentially unchanged; reiterating constructive view.
Key points:
Bottom line: FQ4 results reflective of underlying strength of the ATD business, challenging macro backdrop with surging inflation/gas prices in US and dislocation in Europe. Comparing results to forecast, inside store gross profit $$ +4.7% close to in line, fuel volumes weaker than expected across all regions with US -1.7%, North American gas margins well above expectations, offset by weaker than expected gas margins in Europe as dislocation in markets post-Russian invasion of Ukraine larger than expected. Opex/SG&A $$ higher than forecast, reflecting inflationary pressures on the cost structure, and utility pressure in Europe, along with investments in the business and higher marketing expenses. EBITDA $1.1 B, flat Y/Y, RBCCM E $1.24 B. Full details in exhibits 1-3.
Strong execution of the strategy and elevated fuel margins sustain LTM EBITDA at $5.1 B, management reiterating $5.1 B EBITDA target in F23: ATD has essentially achieved the organic element of its “double again” commitment one year ahead of schedule, with LTM EBITDA in line with the $5.1B target, reflecting solid execution on key KPIs, notably around procurement, fuel, and initiatives to drive inside sales, all of which contributed to the FQ4 print. Key question for investors is sustainability in light of surging price/cost inflation, higher gas prices and expectations of recession. Historical data underscores the resiliency of the c-store segment; against the current macro backdrop, ATD's size, scale and procurement expertise should enable the Company to gain share.
Strong FCF, return metrics, sustained activity on the NCIB. In F22 ATD repurchased $1.9B under the NCIB, renewed for F23 at up to 10% of the float, F23 to date $429 MM repurchased. ROE 21.8%, ROCE 15.4%, leverage ratio essentially stable at 1.39:1 despite NCIB activity.
With heightened focus around impact of rising inflation/gas prices on operating costs/consumer ability to spend, we expect investor focus for the post-release call to be: i) demand trends over FQ4 and Q1 to date, ii) expectations around opex growth rate in F23, initiatives to offset cost pressures, iii) color around impact of Russia/Ukraine conflict on ATD's European operations, iv) progress on key initiatives, v) updated thoughts re: M&A, vi) confidence level in ability to deliver $5.1B EBITDA target.