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 Nov 18, 2022 8:31am

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Post# 35109688

TD

Currently have a $69.00 target. GLTA

Alimentation Couche-Tard Inc.

(ATD-T) C$62.62

Outsized Fuel Margins Expected To Deliver 34% EPS Growth Event

Couche-Tard reports Q2/F23 results on November 22 after market close. We now see EPS (f.d.) rising 34% y/y to $0.87 (up from $0.74 on higher U.S. fuel margin assumptions and slightly lower U.S. employee retention costs) vs. $0.65 LY. Consensus is $0.83 (range: $0.65-$0.92).
Conference call November 23 at 8:00 am ET: 888-390-0549 or 416-764-8682, passcode 78045775.

Impact: NEUTRAL

We forecast a 19%/34% y/y increase in Q2/F23 adjusted EBITDA/EPS, mostly on y/ y improvements in fuel margins. We expect:

SSV to decline 2.6%/3.4%/4.5% y/y in the U.S./Canada/Europe (remaining ~12%/ ~13%/~8% below pre-pandemic levels). High pump prices and continuing work- from-home trends are preventing a full demand recovery. Amidst what still appears to be a rational competitive environment, fuel margins in all geographies have been more than making up for the lower volumes and the rapid opex growth. In the U.S., we now forecast fuel margins of $0.530/gal (up from $0.450/gal previously) vs. $0.377 LY, which would push U.S. fuel gross profit up 33% y/y and more than 60% above pre-pandemic levels on a per-store basis (and up over 50% in total).
SSSG of +5.2%/-1.6%/+0.6% in the U.S./Canada/Europe from the expanding fresh food offer, inflation, improving mix, and data-driven analytics that deliver effective promotional strategies and price optimization, offset by some trade- down, as well as a migration back to tobacco's black market in Canada.
SG&A to rise 2.8% y/y, but up ~9% in constant currency mostly on higher credit- card fees, wages, and rents, partly offset by lower employee retention costs y/y. We see the growth rate moderating in H2/F23.

TD Investment Conclusion

We see ATD as a solid defensive investment, although it has had a good run YTD (second best return within our coverage) and, at 16.5x our NTM EPS, it is trading closer to historical averages of ~17x and roughly in line with its publicly traded c-store peers. We still see attractive near-term earnings growth and the potential catalyst of putting its underleveraged balance sheet to better use via strategic acquisitions – we believe that the latter may be partially priced in already given existing speculation. We acknowledge our target return does not align with our recommendation and will revisit our recommendation, target price, and estimates following quarterly results.