Alimentation Couche-Tard Inc T.ATD

Alternate Symbol(s): ANCTF

Consumer Defensive Grocery Stores

Alimentation Couche-Tard Inc. is engaged in convenience and mobility, operating in about 29 countries and territories, with more than 16,700 stores, of which almost 13,100 offer road transportation fuel. With its Couche-Tard and Circle K banners, the Company is an independent convenience store operator in the United States, and it is engaged in the convenience store industry and road transportation fuel retail in Canada, Scandinavia, the Baltics, as well as in Ireland. It also has a presence in Poland, Hong Kong Special Administrative Region of the People's Republic of China, Belgium, Germany, Luxembourg, and the Netherlands. Its North American network consists of about 17 business units, including 14 in the United States covering 47 states and three in Canada covering all 10 provinces. In Europe, it operates a broad retail network across Scandinavia, Ireland, Poland, and the Baltics through seven business units. Its operating brands include Circle K, Couche-Tard, and Ingo.

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Alimentation Couche-Tard Inc

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Post by retiredcfon Aug 17, 2022 12:33pm

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Post# 34902417

TD

Bump their target by 5 bucks to $67.00. GLTA

Alimentation Couche-Tard Inc.

(ATD-T) C$60.11

Fuel Margins Should More than Offset Cost Inflation/Recovery Event

Couche-Tard will report Q1/F23 results August 30 after market close. We now see EPS (f.d.) rising 8% y/y to $0.77 (up from $0.65 on higher U.S. fuel margin assumptions) vs. $0.71 last year. This would represent a 17% beat on current consensus of $0.66 (range: $0.52-$0.77). For F2023E/F2024E, our EPS increase by 5%/2% to reflect new currency and fuel volume/margin assumptions.
Our increasing confidence that Couche-Tard can more than cover significant opex growth with higher fuel margins and improved in-store performance, lead us to push valuation to the top end of our 16x-17x target range (in line with long-term averages). Applying this to our revised F2024E EPS boosts our target price to C $67.00 (from C$62.00).

Impact: NEUTRAL

We forecast a 3%/8% y/y increase in Q1/F23 adjusted EBITDA/EPS, mostly on y/y improvements in U.S./Canada fuel margins.

We expect U.S. SSV down 1.3% y/y (~11% below pre-pandemic levels) and although Canada/Europe are expected to grow, we expect their SSV to remain 16%/8% below the pre-pandemic level. Record pump prices and continuing work- from-home trends appear to be curtailing the demand recovery. Amidst what still appears to be a rational competitive environment, fuel margins have been making up for the lower volumes and the rapid opex growth — we now forecast U.S. fuel margins of at least $0.500/gal vs. $0.390/$0.376 previously/last year.
We forecast SSSG of +2.5%/-1.8%/+3.4% in the U.S./Canada/Europe from the expanding fresh food offer, improving mix, and data-driven analytics that deliver effective promotional strategies and price optimization, offset by some trade-down and a migration back to tobacco's black market (mostly in Canada).
SG&A is forecast to rise 10.7% y/y (~17% in constant currency) on inflation, higher credit-card fees, the tail-end of a recovery in ad/promo activity and labour hours to pre-pandemic levels, as well as employee retention programs.

TD Investment Conclusion

Valuation has moved up over the past month, and the shares are now trading at 17.7x consensus NTM EPS (vs. the long-term average of ~17.0x-17.5x). Even with our more conservative 17x target valuation, we see double-digit returns and possibly more should a material acquisition come to fruition (ATD has >$10bln of acquisition capacity).