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 Aug 04, 2022 1:11pm

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Post# 34871522

RBC

Current and upside scenario targets are $77.00 and $104.00. GLTA

August 3, 2022

Alimentation Couche-Tard Inc.

Fill 'er up - Global Top 30 Idea ATD well positioned heading into FQ1... and a probable recession

Our view: Reiterating our constructive view on ATD ahead of FQ1 results to be reported in late August. The company remains on track/ahead of plan on the organic growth component of its strategic plan to "Double Again" by current fiscal year (F23). Results were underpinned by in-store initiatives, fuel margin sustainability at levels well above C19 and demonstrated resilience through recessions (Ex. 4 & 5), augmented by a rapidly improving M&A backdrop and ~$15B in B/S capacity.

Key points:

FQ1 Preview (conference call Aug 31): Forecasting EBITDA/EPS $1.335B/ $0.71, above consensus $1.197B/$0.63, most Street estimates not updated to reflect strong fuel margins during the quarter. *Details in Ex. 8-10.

The Q at a glance: Expecting results to highlight a gradual albeit uneven recovery in traffic and momentum inside the store, partly offset by the impact of accelerating gas prices on credit card fees.
Upside bias to estimates: Bias to the upside on conservatism embedded in our fuel profitability forecasts; latest industry data available in ourPulling up to the pump publication.
FX a meaningful drag on results: European currencies down in the mid- teens range on average Y/Y relative to USD, CAD down ~5% Y/Y.

Reiterating OP rating, $77 target unchanged. Against the backdrop of elevated inflation and rising rates, and in the face of growing economic uncertainty, we recommend investors gravitate toward staples and staple- like names that perform across the cycle. ATD is included in the RBC CM Global Top 30.

On track to meet/exceed organic portion of strat plan; rising rates helping to normalize M&A valuations. ATD achieved organic $5.1B EBITDA a year ahead of plan (Ex. 1 & 2), underpinned by record and largely sustainable fuel margins, cost optimization (on track for > $400MM target), and store initiatives with focus on optimizing promo activity, local assortment, and labour hours. Fresh Food, Fast in ~4k locations driving higher sales, reducing shrink. NTIs +130 just shy of target +150 on transient SC headwinds.
Primed to participate in M&A across regions as valuations improve. With leverage 1.39x vs comfort 2.25x and $15B BS capacity (Ex. 3 & 6), ATD active on NCIB ($3B ambition this year) until M&A backdrop improves. Growing evidence of seller compromise on valuations due to rising inflation and rates. M&A component of strat plan $1.2B incremental to our forecasts.
Relative and absolute valuation remain attractive (Exhibit 7) and recent activist activity on Suncor and unconfirmed reports that ATD is in talks with EG Group likely to keep the name topical.