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 May 02, 2022 8:57am

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Post# 34646973

TD

Currently have a $62.00 target. GLTA

Alimentation Couche-Tard Inc.

(ATD-T) C$57.19

Couche-Tard Reportedly in Talks to Buy EG Group Event

Friday evening, the Wall Street Journal, citing sources familiar with the matter, suggested that Couche-Tard and EG Group have traded proposals in recent weeks that could see ATD acquire EG Group at ~$16bln (excluding lease liabilities); a deal is yet to be agreed upon.

Impact: POTENTIALLY POSITIVE

Talk of ATD acquiring part or all of EG Group's 6,560 sites (pro forma announced acquisitions/divestitures) across 10 countries had surfaced last September (note). The 1,737 U.S. sites (39% of EBITDA) would be a very attractive fit, in our view, adding high-quality stores and additional density to an already successful network. ATD has also had a stated interest in the U.K., Australia, and some European markets.
Certain geographies (Italy, Germany, and France) accounting for 38% of EG Group's sites but only 16% of EBITDA are believed to be less attractive (oversaturated, intense competition, and unfavourable regulations), and ATD may wish to divest these locations should a deal come to fruition.
Acquiring EG could substantially boost Couche-Tard's scale (adding ~50%/~30% to its store count/EBITDA pre-synergies), while providing meaningful synergies. We would estimate immediate accretion of 2% and 20% post-synergies of ~40%, though this would be reduced to 0%/11% once we account for Couche-Tard likely stopping its NCIB for two years. Overall, we could see a lift of up to ~C$7.00 to the share price post-synergies.
With leverage estimated to peak at just over 3.3x (3.7x was the peak after the SFR acquisition), we estimated that Couche-Tard could acquire EG without issuing equity — it could de-lever to below 3.0x in <18 months (satisfying rating agencies and protecting its investment-grade rating) and return to its preferred 2.25x within three years.

TD Investment Conclusion

Defensive investments remain in favour and Couche-Tard has exceeded consensus expectations in nine of the past 11 quarters. At 17.4x consensus NTM EPS — roughly in line with its long-term averages — the shares look reasonably valued, but the balance sheet is under-levered and ATD is expected to either repurchase 10% of its float over the next five quarters or make a sizeable acquisition that adds materially to future earnings.