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 26, 2020 3:04pm

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Post# 31982666

TD

Have a $53 target. GLTA

Alimentation Couche-Tard Inc.

(ATD.B-T) C$42.97

Sector Rotation Overshadows Strong Earnings Beat Event

Increasing our EPS forecasts for F2021/F2022/F2023 by 7%/8%/4% following the Q2 results (solid beat) and conference call.

Impact: MIXED

We were surprised by ATD shares' lack of reaction to blowing past our Street-high EPS estimate, but we sense that investors took advantage of the positive report to move more money from Staples into hotter sectors. Some investors also appear to have concerns on ESG (high carbon and tobacco exposure) and the potential for EPS to fall in C2021 as Couche-Tard laps tough fuel margin comps.
This sector rotation is expected to persist; so we are lowering our valuation range by two points to 17x-18x (applied to EPS for the 12 months ending October 2022), in line with its five-year average. The lower valuation is offset by our higher EPS forecasts, leaving our C$53.00 target price unchanged.
The strong FCF ($2.0bln-$2.5bln/year) and balance sheet ($6.0bln of cash and available credit) position Couche-Tard: 1) to increase new store construction (which often delivers 3-4x the revenues of the weaker stores it sells/closes); 2) for an accelerated Fresh Food, Fast rollout to an additional 3,000 stores by April 2022 (on top of the 1,500 sites currently operating); and 3) for acquisitions, where activity sounds higher than anticipated.
Amidst significant pandemic-related demand destruction, investors should be comforted that very rational competition, and several impactful sourcing/logistics and pricing strategies, permitted much higher fuel margins to easily offset lower SSV, driving fuel GP +11% (13% in Q1). We see industry fuel profitability being protected, whether it is during a pandemic or wide-scale adoption of electric vehicles.

TD Investment Conclusion

The c-store industry is proving resilient, rapidly adapting merchandise mix to cater to customer needs during the pandemic, so that SSS and in-store profit growth can continue. Although fuel demand recovery has hit a setback amid the second wave of COVID-19, this is being more than offset by the combination of higher fuel margins, solid in-store profit growth, and effective cost-efficiency programs. Strong FCF and an under-levered balance sheet also position Couche-Tard well for further M&A and/ or returning capital to shareholders.