Alimentation Couche-Tard Inc.
Following the Phoenix: Reiterating constructive view ahead of FQ2 release, target unchanged
Our view: Reiterating constructive view ahead of FQ2 release following strong and better than expected FQ1 results and, most recently, ATD's Investor Day during which the Company outlined a realistic path to its $10B EBITDA target in F28 (11.7% five-year CAGR), underpinned by a balanced and credible set of assumptions. Incorporating the latest reads on fuel margins, FX, and fuel prices, fine-tuning assumptions around SSS, GM% and SSG, and rolling valuation forward to TTM FQ3/26E to reflect the passage of time leaves our forecasts broadly unchanged ahead of FQ2. Reiterating OP rating and $94 PT.
Key points:
FQ2/24E preview: Forecasting EBITDA/EPS $1.410B/$0.77 (consensus $1.384B/$0.78) when ATD reports FQ2 November 28, y/y marginal decline reflects the normalization of gas margins to (consensus EBITDA).
FX volatility continues to impact translation of earnings: FQ2 European currencies are up almost 2.5% on average y/y relative to USD, CAD is down ~3.0% y/y.
US fuel margin forecast revised to 46.0¢/g, ~5¢/g premium to our calculation of industry margin using a weighted average based on ATD footprint. Sustainable longer-term fuel margins remain in the low 40c/g with an upward bias, underpinned by both industry and Company-specific factors.
Detailed quarterly forecasts in exhibits 1-3; key drivers of US fuel profitability in exhibits 4 & 5.
M&A cadence. Following the Investor Day held on October 11, ATD closed on the previously announced acquisition of 112 company-operated fuel and convenience retail sites from MAPCO Express Inc. as well as received a green light from the European Commission to proceed with an acquisition of 2,193 locations from TotalEnergies (the deal is expected to close in December 2023). Contribution from these transactions included in ATD EBITDA target $10 B in F2028 and previously incorporated in the model (note here). With current BS capacity in excess of $10B, annual PF FCF > $3B, and strong return metrics (exhibit 6), Couche-Tard is well positioned to fund business initiatives and network development and seize further M&A opportunities.
Reiterating Outperform rating, price target unchanged at $94. Against the backdrop of macro uncertainty, we favour ATD as a name that performs well across the cycle and enjoys stock-specific optionality.