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 Oct 12, 2022 8:50am

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Post# 35019076

TD

Have a $69.00 target. GLTA

Alimentation Couche-Tard Inc.

(ATD-T) C$56.27

Could a Deal to Acquire EG Group be Getting Closer? Event

With ~6x leverage (excluding lease liabilities) and difficult financing markets, we believe that EG's owners may be eager to take profits on past investments and close a sale before debt maturities begin in February 2024. Large transactions often take 9-12 months to close, so a deal could come soon. As such, we are updating our May 2 analysis of a potential acquisition of EG Group.

Impact: NEUTRAL

We would view an acquisition of EG Group (>6,500 sites spanning the U.S., Europe, and Australia) favourably, as it mostly falls within ATD's core c-store concentration, substantially boosts Couche-Tard's scale (adds ~50%/~30% to its store count/EBITDA pre-synergies) and density (particularly in the U.S.), offers significant opportunities for synergies, and some initial exposure to standalone QSR locations.
We value EG Group at ~9.5x EBITDA or ~$14bln excluding lease liabilities (down from $16bln previously on currency movements). Immediate EPS accretion is estimated at 1% and 20% post-synergies, although this is reduced to -6%/+13% once we remove the NCIB for two years. A deal would add ~C$7-C$9 to our valuation of ATD shares once fully integrated, although consensus may add more (we do not believe the Street is assuming as large an NCIB).
We assume synergies equal to 40% of EG's EBITDA, below ATD's historical levels, as some of the usual synergy upside may have already been captured by EG as it integrated its various acquisitions.
Under our assumptions, ATD's leverage would peak at just under 3.1x and return to its preferred 2.25x within 2.5 years. That said, there is a chance that Couche-Tard uses a large acquisition as an opportunity to list in the U.S. (via an equity issue).

TD Investment Conclusion

We see ATD as a strong defensive investment, considering it is trading at only 14.4x our NTM EPS (near 10-year-low valuations and below its publicly traded peers), despite attractive near-term earnings growth forecasts and the potential catalyst of putting its underleveraged balance sheet to better use via strategic acquisitions. Our C$69.00 target price (23% total return) assumes that valuation will return almost to historical averages of ~17.0x-17.5x.