Opinions
Geoff Scott
Alimentation Couche-Tard (B)
ATD.B-T
COMMENT
Dec 27, 2017
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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A good time to buy? Likes it. One of those Canadian companies that are a global champion. They operate convenience stores better than anyone else in the world almost. Very good at allocating capital. They executed on their growth through acquisition strategies very efficiently. Just received regulatory approval on their acquisition of Holiday. They should be able to generate additional synergies that should translate into more cash flow and earnings. Margin on oil price is a driver for their profitability. Very good merchandiser, being able to upsell and driving incremental same store sales growth. Sees possibility to continue to grow earnings and potential margin expansion. Trading around 16.5X earnings today versus the low 20s they peaked out in the past. Not expensive relative to its own history. Very good historical business in Canada and a global champion. (Analysts’ price target is $79.)