Opinions
Mike S. Newton, CIM FCSI
Alimentation Couche-Tard (B)
ATD.B-T
HOLD
Oct 06, 2016
Stock price when the opinion was issued
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Very strong business - founder led & owned. Exception creator of wealth the past ~20 years. Has owned shares since 2014. Very good consolidator of convenience stores. High quality capital allocation skills. Recent 7-Eleven M&A is interesting, but depends on the final price that is settled on. Would recommend holding and/or buying.
EPS of 68c matched estimates; sales of $20.90B missed estimates of $21.21B. EBITDA of $1.64B beat estimates by 3%. Supply-chain optimization could let Couche-Tard maintain fuel profitability across its key markets for the rest of the fiscal year. US fuel margins declined sequentially (down 3.9%), but increased 2.5% compared with last year, an inflection point for the metric. If the company can keep this cadence of growth for 4Q, it's likely that US fuel margins may remain around mid-40 cents per gallon for the year. Canada might remain in the low-teen cents and high-single digits in Europe. Better control management allowed US inside-the-store margins to expand. As for M&A, recent acquisitions seem to remain on track, with the company reiterating its ambition for a friendly merger with Seven Eleven now that the possibility of a management buyout is gone. The stock is up, but this is likely more due to ongoing discussions with Seven Eleven rather than the quarter. But we are comfortable with the results.
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Has held this for a long time, and it has done great. The only concern is that it has had a grind for 2016. The market reacted very positively to their CST purchase in the US. It had a big pop and then has faded back down. The problem is, they are going to have a lot of acquisitions they are going to have to work through right now, which is what the market is probably not rewarding them for. It will probably continue to consolidate for another couple of months, and then hopefully will resolve itself to the upside.