Alimentation Couche Tard Inc. (TSE:ATD.B) has a management team with a track record of generating high returns from its acquisitions
SmallCapPower | October 19, 2017: Alimentation Couche Tard Inc. (TSX:ATD.B) is a global convenience store and road transportation fuel leader best known for its inorganic growth strategy. Since fiscal 2008, Couche Tard has had Return on Equity of +15% every year, which shows that the Company has been able to profit from the past acquisitions. But in the last few years, there has been a decline in the number of acquisitions, which has affected the growth negatively. Also, Alimentation Couche Tard is taking its time to integrate the CST Brands acquisition, its latest and largest acquisition to date. It will take some time to realize synergies from these acquired stores and make money from it. Alimentation Couche Tard has been battling losses due to the natural disasters (Hurricanes Harvey and Irma) over the past year, which will negatively affect the top line.
However, it’s important to remember that the above headwinds are short term and will not hurt the long-term fundamentals of the Company whose management team has a track record of generating high returns from its acquisitions.
Investment Highlights
- Broad Geographic Footprint with Leading Market Positions
- Proven Track Record of Strong Financial Performance
- Track Record of Highly Disciplined Growth and Debt Reduction
Broad Geographic Footprint with Leading Market Positions
Alimentation Couche Tard is the leader in the Canadian convenience store industry. In the U.S., it is the largest independent convenience store operator in terms of the number of company-operated stores (corporate stores). In Europe, Couche Tard is a leader in convenience store and road transportation fuel retail in the Scandinavian countries (Norway, Sweden and Denmark), in the Baltic countries (Estonia, Latvia and Lithuania), and in Ireland and also has an important presence in Poland.
Proven Track Record of Strong Financial Performance
Alimentation Couche Tard has performed consistently throughout all economic cycles and has a prolific history of positive same-store comps with a 22.5% Return on Equity.
Track Record of Highly Disciplined Growth and Debt Reduction
Alimentation Couche Tard is committed to maintaining a strong balance sheet and sustaining its investment-grade credit rating. Despite taking on enormous deals, the Company has been able to rapidly deleverage after acquisitions.
Financial Analysis
Revenues were $9.8 billion for the first quarter of fiscal 2018, up by $1.4 billion, an increase of 16.9% compared with the corresponding quarter of fiscal 2017. Results were attributable to the contribution from acquisitions, to a higher average road transportation fuel selling price, as well as to organic growth. These items, which contributed to the increase in revenues, were partly offset by the negative net impact from the translation of revenues of its Canadian and European operations into U.S. dollars.
Gross profit was $1.7 billion for the first quarter of fiscal 2018, up by $219.4 million, an increase of 14.4% compared with the corresponding quarter of fiscal 2017, attributable mainly to the contribution from acquisitions as well as to organic growth.
During the first quarter of fiscal 2018, EBITDA increased from $614.7 million to $689.7 million, a growth of 12.2% compared with the same quarter last year.
Alimentation Couche Tard posted earnings of $364.7 million, which are up 13% year over year. Earnings per share for the quarter of $0.64 have also improved from $0.56 a year ago. Increased revenue was the primary driver in the Company’s net income growth as its profit margins remained intact at over 3%, similar to what was achieved in the previous year.
During its September 6, 2017 meeting, the Corporation’s Board of Directors declared a quarterly dividend of C$0.09 per share for the first quarter of fiscal 2018 to shareholders on record as at September 15, 2017, and approved its payment for September 29, 2017.
Outlook
Alimentation Couche Tard shares have declined over 10% in the past year, due mainly to the slowdown of acquisitions, the recent Hurricane disaster and un-realized synergy from CST Brands acquisition. For a Company that has performed consistently through all economic cycles, these temporary issues are one-off and will eventually fade away. Going forward, earnings growth will re-accelerate as mainly realizes synergy from its latest CST Brands acquisition. Investors should view this as a good entry point in this fundamentally strong and growth-oriented company.
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