ATD/B.TO - Alimentation Couche-Tard Inc

[mwtorock]

Management is owner operator that built an empire of convenient stores from a single location through hundreds of acquisitions in North America and Europe. All the acquisitions were funded with CFO and low rate long term debt, which usually got paid off with cash flow from business rather quickly.

 

This strategy has been successful for a few reasons:

1) Acquisitions were done with profitability focus. They did not expand into China but Europe with that in mind. Management is not only paying attention to revenue growth but also bottom line profit growth.

2) Couche-Tard’s most efficient practices would be integrated into acquired companies, and vice versa. Ongoing comparisons of best practices and operational expertise of various regions of the network keeps the company evolving and adopting to constantly changing market trends.

3) Decentralized management approach to delegate power to regional managements and store managers. It provides growth opportunities to the people with entrepreneurial attitude. 

 

Growth from here:

1) Recent acquisitions in the US should start paying off

2) Organic growth through fresh produce, coffee and other food services.

3) Size matters in this industry. Supply terms and efficiency improvements are expected. It is also investing in private brands to drive profits.

 

Risks:

1) Decline of cigarette sales. Management hopes to drive food sales to offset that.

2) EV takes over – no need for gas stations. North Europe is ahead of US in this trend, and need to keep an eye on developments there.

3) Succession risk – founder and partners are old but still younger than WB.

 

Valuation is not cheap at this point. However if you ask around, a single location of gas station with real estate is probably worth $3M on average in the US, so with the valuable properties, I would say downside risk is limited.

 

If you are interested, read the Book – 'Daring to succeed'. Comments or thoughts are welcome. Even better if you could shoot holes in this thesis. Thanks.

 

 

[mwtorock]

fiscal 2018 results update - making good progress

 

Diluted net earnings per share were $2.95 compared with $2.12 for fiscal 2017, an increase of 39.2%, while adjusted diluted net earnings per share were $2.60 1 compared with $2.21 1 for fiscal 2017, an increase of 17.6%. The Corporation estimates that adjusted net earnings per share, based on an equivalent number of weeks would have been $2.64 , an increase of 19.5%.

U.S. fuel margins were 19.39¢ for fiscal year 2018, up 4.5% compared to fiscal year 2017.

Addition of more than 2,100 stores through new openings and acquisitions.

Return on equity and return on capital employed at 24.8% and 12.0%, respectively, on a pro-forma basis.

 

Quarter 4 update

 

Net earnings attributable to shareholders of the Corporation ("net earnings") of $392.7 million ( $0.70 per share on a diluted basis) for the fourth quarter of fiscal 2018 compared with $277.6 million ( $0.49 per share on a diluted basis) for the fourth quarter of fiscal 2017. Excluding certain items for both comparable periods, net earnings for the quarter would have been approximately $336.0 million 1 or $0.59 per share on a diluted basis, compared with $0.52 per share on a diluted basis1 for the fourth quarter of fiscal 2017, an increase of 13.5%. The Corporation estimates that adjusted net earnings and adjusted net earnings per share, based on an equivalent number of weeks would have been approximately $360.0 million and $0.64 , respectively, an increase of 20.9% and 23.1% respectively.

Total merchandise and service revenues of $3.2 billion , an increase of 25.0%. Same-store merchandise revenues increased by 1.8% in the U.S., by 4.3% in Europe and by 3.6% in Canada . For the first quarter since the acquisition, CST sites same-store merchandise revenues grew both in the U.S and in Canada .

Merchandise and service gross margin increased by 0.3% in the U.S., to 33.6%, it remained stable in Europe at 44.0% and, in Canada , it decreased by 0.3%, to 34.4%, as a result of the conversion of some of the Esso sites to company-operated stores.

Total road transportation fuel volumes grew by 33.8%. Same-store road transportation fuel volumes decreased by 0.1% in the U.S. and by 2.9% in Canada , while same-store volumes increased by 0.1% in Europe .

Road transportation fuel gross margin increased by US 1.82¢ per gallon in the U.S. to US 17.29¢ per gallon, by US 0.89¢ per litre in Europe , to US 8.72¢ per litre and by CA 1.39¢ per litre in Canada , to CA 9.44¢ per litre.

Current annual synergies run rate related to the CST integration reached approximately $153.0 million .

Adjusted leverage ratio improved to 3.13:1.

Increase of CA 1.0¢ of the quarterly dividend, a growth of 11.1%.

Circle K rebranding project for all Statoil sites in Europe is now completed. The project was launched in Ireland while roll out continues in North America . More than 3,350 stores in North America and more than 1,650 stores in Europe now display the new Circle K global brand.

 

 

[absolutbrian]

I got around published an investment piece on Alimentation Couche-Tard.

Link: https://seekingalpha.com/article/4356128-alimentation-couche-tard-and-circle-k-invest-in-one-of-best-retailers-in-world

I made the case for investing in Alimentation Couche-Tard, better known for operating the convenience store Circle K. It’s a great business with great management. It’s simple, predictive, and generates tons of free cash flow. The company is undervalued. The market discounts potential acquisitions and growth opportunities. ATD returned 875x since its IPO in 1984 and over 10x in the last ten years. Despite the performance, it flies under the radar. The fact that nothing has been added to the thread in two years reflects that.

 

Thesis: By investing in Alimentation Couche-Tard, you are buying a piece of an excellent business that has a history of creating shareholder value. ATD is currently undervalued by at least 13% with potential upside of 23% to 39% in 3-4 years if they complete their growth targets. ATD is currently in a plan to double the business. ATD is a buy and hold.

[absolutbrian]

Good article in Fortune

How a Canadian convenience store giant built its empire – Fortune

https://fortune.com/2020/08/10/couche-tard-gas-station-convenience-stores-biggest-canadian-companies/

[absolutbrian]

Circle K Owner in Talks to Buy Carrefour for About $20 Billion

https://www.bloomberg.com/news/articles/2021-01-12/circle-k-owner-couche-tard-said-to-explore-purchase-of-carrefour

 

That would be an interesting transaction. I'm not too sure of the fit however. The market seems to think the same way. But ATD has proven to be masters at acquisition and operations. So I wouldn't let it pass them that they couldn't pull this off.

[mwtorock]

i see it as a problem for this type of roll ups. after a while, you can only target these big acquisitions to move the needle...

[longlake95]

If anyone will pull it off it will be ATD. They are close to the people at Metro. Metro owned a passive position in ATD for years (still might - I haven't look recently), you can be sure ATD can pick up the phone and call Eric LaFleche at MRU anytime. This might be another reason for ATD and MRU to merge.

[absolutbrian]

Metro did have a stake in ATD for a long time and gradually so it. I don't think they have any or much of a stake in ATD anymore. They did well. Metro is a great operator.

[KCLarkin]

Added to my position. No opinion on the proposed deal, but I'm assuming it will be blocked. The deal-related sell-off is a good buying opportunity.

[Xerxes]

I believe Metro unloaded its ACB position (a huge run that it was) to fund its purchase of Jean Couto

[deleuze68]

Just wondering, even if the deal is blocked, doesn't this tarnish the opinion of management? Part of ATB's valuation rests on the trust in management's ability to grow earnings through synergistic acquisitions. I could see this bizarre takeover attempt hanging a cloud over ATB for a while.

[montizzle]

Just wondering, even if the deal is blocked, doesn't this tarnish the opinion of management? Part of ATB's valuation rests on the trust in management's ability to grow earnings through synergistic acquisitions. I could see this bizarre takeover attempt hanging a cloud over ATB for a while.

 

I think it does remove some management premium to an extent. This is (partially) why we haven't seen a full rebound today, and won't until we get more explanation.

[Xerxes]

 

I think given their history the market will give the management the benefit of the doubt. The company needs to always look at new opportunities and certainly through M&A that is how ACB has grown. I understand that Carrefour has a grocery aspect to it that is *new*. Now, certain market participants (i.e. tourists) may not want to sit around and go through operational integration of a large M&A nor do they want to stick around when the deal is being consummated.

 

That is all fine and well for me. As long-term owner, I am paying the annual salary of ACB's management and I trust they will figure it out. I would not be in the stock if I didn't like them. Of course, i can also chose to not add to the stock as the rest of portfolio grows and only add after one gets comfortable, but then you will be paying more.

 

 

 

[KCLarkin]

As expected, the deal is dead:

https://financialpost.com/news/canadas-couche-tard-drops-20-billion-carrefour-takeover-plan-after-opposition-from-france-govt

 

The management team built their reputations over 40 years, so I give them the benefit of the doubt on this deal.

 

At the current price, I don't see any premium for future acquisitions or the superior ROE compared to other Canadian consumer staples.

[Spekulatius]

As expected, the deal is dead:

https://financialpost.com/news/canadas-couche-tard-drops-20-billion-carrefour-takeover-plan-after-opposition-from-france-govt

 

The management team built their reputations over 40 years, so I give them the benefit of the doubt on this deal.

 

At the current price, I don't see any premium for future acquisitions or the superior ROE compared to other Canadian consumer staples.

 

I don’t own this and never have, but what is the point of owning AT and then selling the stock when they make an acquisition? AT has grown by acquisitions basically, so this is just what they have been doing for decades. I don’t think the Carrefour acquisition looks obviously dumb either and even if it does, I would try to understand their rationale before making a decision on the stock

 

I am going to look into this stock a bit more and see if it is a potential long for me.

[Xerxes]

There is no official rational from the company, but as i understand it based on some readings is the following:

 

In a world 10 years from now, where is there is more and more electrification, they can use the footprint of grocers to their advantage. For instance when you plug in your car to be recharged, that may take half-hour. You can use that time to do some grocery shopping. You cannot really do that with convenience store.

 

For any interested in Couche Tard a recommended read is the following. You get to know the founder and his upbringing. As a Quebecer i found it to be a great read. You also get a glimpse how the current CEO came to be known.

 

https://www.amazon.ca/Daring-Succeed-Bouchard-Couche-Tard-Convenience/dp/198800263X/ref=sr_1_2?dchild=1&keywords=couche+tard+bouchard&qid=1610814365&s=books&sr=1-2

 

Myself, if the price is still down on Monday, I'll be adding.

 

[Morgan]

I’ll add a plus one for the book. Quite a good read and an impressive entrepreneur.

[Xerxes]

Tomorrow 8 AM EST

Conference call

 

https://corpo.couche-tard.com/wp-content/uploads/2021/01/2021-01-16-Analyst-Call-Announcement_EN.pdf

 

I think once the initial reaction is passed, Government of France will see the light of the day but will have lots of 'asks', ... but maybe a year from now !