Current and upside scenario targets are $80.00 and $106.00. GLTA

November 22, 2022
Alimentation Couche-Tard Inc.

Owl in their tank: ATD reports strong and in-line Q2/F23 results

Our view: Q2/F23 results underscore ATD strong positioning, supportive of our constructive view of this Global Top 30 name. Q2 adjusted EPS $0.82, +26.2% Y/Y and given all the moving pieces, in line. Individual segment SSS/ margin trends largely in line overall, save for European gas margins. Opex 2% above forecast, largely on European energy costs. LTM EBITDA $5.47B, well above F23 target $5.1B (ex-M&A) supported by strong gas margins/ solid inside store metrics. ATD primed for M&A, in the interim active on NCIB. F23/24 forecasts largely unchanged, reiterating constructive view.

Key points:
Bottom line: FQ2 results reflective of underlying strength of the ATD business, notable gains in fuel procurement to drive strong gas margins, inside the box recovering nicely save for Canada, which continues to be impacted by higher sales of illicit cigarettes. Comparing results to forecast, both inside store and gas gross profit $$ close to forecast, former +3% Y/ Y, latter +20%. Fuel volumes remain under pressure due to high gas prices, but pleased to see US gas line better than expected. Opex/SG&A $$ a bit higher than forecast, normalized +8.1% with single largest driver credit card fees due to higher gas prices. Adjusted EBITDA $1.45B, +15% Y/Y, RBCCM E $1.48B. Full details in exhibits 1-3.

Strong execution of the strategy and elevated fuel margins propel LTM EBITDA to $5.47B, "double again" F23 organic EBITDA target $5.1B. ATD now comfortably above the organic element of its “double again” commitment, driven by strong execution on key KPIs, notably around procurement, fuel, and initiatives to drive inside sales, all of which contributed to the FQ2 print. ATD continues to invest in innovation and mobility, with over 1,000 smart checkouts rolled out and over 1 MM pay-by- plate fuel transactions in Europe. 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, F23 program up to 10% of the float, YTD ATD has repurchased 3.1% of the float for $1.08B. ROE 22.7%, ROCE 16.4%, leverage ratio -0.1x at 1.2:1 despite NCIB activity. Quarterly dividend +27.3% to CAD$0.14/share, current yield 0.9%.

Expect focus for the post-release call to be: i) demand trends over FQ2 and FQ3 to date as inflation and rates both accelerate, but as gas prices moderated; ii) consumer uptake of fresh food and impact on backcourt sales, iii) promotional intensity and effectiveness, iv) outlook for opex growth in H2/F23; iv) commentary re: current M&A environment; v) thoughts around sustainability of gas margins.