Bullboard - Stock Discussion Forum Alimentation Couche-Tard Inc T.ATD

Alternate Symbol(s): ANCTF

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... see more

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TSX:ATD - Post Discussion

Alimentation Couche-Tard Inc > So Does TD

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Post by retiredcf on Jun 29, 2023 9:22am

So Does TD

Alimentation Couche-Tard Inc.

(ATD-T) C$68.00

Strong Merchandise GM% Trend, M&A Opportunities Provide Optimism

Event

Our annual EPS estimates rise 3%, reflecting strong in-store margins across all geographies, higher fuel margins (U.S./Europe), and higher SSSG/SSVG in Canada, partly offset by lower SSSG/SSVG in U.S./Europe.
Our higher earnings forecasts boost our target price to C$76.00 (from C $74.00).

Impact: POSITIVE

We came away from the conference call with confidence that impressive in-store GM% are mostly sustainable (particularly in North America). Mix was the primary driver, with sales shifting away from low-margin tobacco to higher-margin beverages and fresh food (Fresh Food, Fast sales growing well over 20% in the >4,860 stores with the program), as well as private brands (growing 27%, leaving penetration at roughly 7% in North America). Tobacco's negative SSS impact related to sales moving into illicit channels (now accounting for ~40% of industry sales) seems to be diminishing in Canada, whereas the U.S. should continue to feel some pressure from weak tobacco demand and increased restrictions on sales of flavoured other tobacco products. Europe in-store margins also benefited from mix (strong seasonal car wash utilization, improved mix within categories, less tobacco), while Circle K Hong Kong benefited from improved cigarette profitability (procurement, pricing).

Normalized opex was +5.5% in the quarter and with the renewed focus on cost optimization, we see ATD keeping growth below inflation over the forecast horizon.

Q4/F23 leverage of 1.5x remains below management's comfort level of 2.25x, and we see it peaking at only 2.1x pro forma TotalEnergies, leaving ATD in a strong position to pounce on acquisition opportunities that may materialize. With the positive acquisition environment following years of inflated multiples, management expects to close 4-5 "material" deals in F2024 (including the two previously announced).

TD Investment Conclusion

The shares are +14% YTD, the highest within our coverage as ATD tends not to see the same selling pressure as the grocers during disinflationary periods, and has not suffered the commodity pressures of the food processors. We see further upside to ATD (despite expected pressure on F2024 EPS growth from some normalization of fuel margins) as the market tends to be more focused on merchandise SSSG/ margin trends (generally strong) and acquisition opportunities (appearing more readily available at reasonable valuations).