Opinions
James Hodgins
Alimentation Couche-Tard (B)
ATD.B-T
BUY
Aug 28, 2018
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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He’s bullish on it. It took a big hit on its first quarterly announcement. The second quarter was fine. The problem was the spike in oil prices. They have a problem keeping up with a rapid price rise, but a quarter later they have caught up and the stock has come back. He thinks the electric vehicle infrastructure will take a lot longer than the market anticipates, which gives Couche-Tard a longer time to adapt. He expects them to turn in nice cash flows under their current model for at least a decade. Headwinds? (a) sharply rising energy prices over the short term; (b) reduced driving miles, as a social trend; (c) currency risk, because they are effectively long the US dollar, though this is currently a tailwind for them; and (d) changing habits of their customers such as increased cigarette regulation.