Alimentation Couche-Tard Inc T.ATD

RBC Report

[retiredcf]

Their upside scenario target is now $111.00. GLTA

March 16, 2023

Outperform

TSX: ATD; CAD 62.61

Price Target CAD 85.00 ↑ 82.00

Alimentation Couche-Tard Inc.

Willkommen, Bienvenue!: PT to $85 (+$3) on strategic & accretive TotalEnergies transaction

Our view: Our analysis points to mid-single-digit accretion as early as year 1 related to ATD's firm offer to acquire assets from TotalEnergies, driven by the implementation of best practices, the complementary store network, and the realization of revenue synergies. In our view, this transaction is the quintessential ATD deal: Strategically compelling, geographically complementary, and an attractive valuation to deliver a financially accretive transaction for shareholders. We also note that depressed Euro exchange rate (-9% Y/Y as per ATD's FQ3 release) suggests incremental upside assuming FX normalizes. PT +$3 to $85.

Key points:

Bottom line: Positive both financially and strategically, PT +$3 to $85.

We are leaving our formal estimates unchanged pending incremental details around the acquired assets, but raising our target multiples to 11.75x EBITDA/19.0x EPS to reflect preliminary estimates around the potential accretion from the TotalEnergies transaction. Our analysis points to F25-26-27 accretion in the 5-7% range, or ~2-4% vs last published forecasts that included more substantial share repurchase activity to optimize the balance sheet. *Preliminary accretion/details in Appendix*

• Assets: 1,582 sites in Germany/Netherlands & a 60% controlling interest in 611 sites in Belgium/Luxembourg for a total of 2,193 locations from TotalEnergies. Cash consideration is Euro 3.1B (~USD$3.3B), including lease liabilities ~Euro 3.6B (~USD$3.8B), ~8x trailing EBITDA.

• Closing: Targeting C23 year-end, subject to typical approvals. Given ATD does not currently have operations in any of these geographies, and that the company has been a responsible actor in Europe for over 10 years, in our view the transaction should not face any substantial hurdles.

• Funding/Balance Sheet Implications: Transaction to be funded from cash on hand, existing credit facilities, US Commercial Paper program and new term loan. Leverage post-closing of transactions a still-modest ~2.1x, leaving ATD with incremental Balance Sheet capacity of ~$10B post deal. Management reiterated flexibility to act on NCIB up to 2.25x EBITDA.

• What is ATD acquiring: Sites are high quality, and extend ATD's footprint into 4 new markets previously identified by management as attractive, and with strong market positions: #1 in Belgium, #2 in Luxembourg, #4 in Germany and the Netherlands. ATD is also now partnering with a leading integrated oil company with substantial retail assets.

• Synergies: ~EUR 120 MM over the first 3 years, with upside notably inside the box. ATD has extensive experience acquiring c-store networks from integrated oil companies, and surfacing compelling value for investors. We point to areas such as procurement, category management/ emphasis including an improved food offering, promo activity and opex right-sizing as key potential sources of upside inside the box, over time. Moreover, Scandinavian learnings put ATD on solid footing as EV transition accelerates in Western Europe.