Alimentation Couche-Tard Inc

Alimentation Couche-Tard Inc. (TSX: ATD.B), is a Canada based retailer with a focus on the convenience store industry. The Company is engaged in the  business of selling goods for immediate consumption, road transportation fuel and other products through stores and franchise operations. 

Key highlights OF Q2 2021 

• Reduced long term debts: The company managed to bring down its long-term debt by USD 1.5 billion to USD 6.2 billion as of 11 October 2020, compared to USD 7.7 billion at 26 April 2020, as a result of the repayment of its term revolving credit.

• Ample liquidity:The company had approximately USD 2.5 billion available under their operating credit facility; at the same time, the company had USD 3.5 billion in cash and cash equivalent. The current liquidity position seems sufficient enough to meet the near-term requirement.

• Increase in dividend: The company approved an increase of 25% in the quarterly dividend, bringing it to CAD 0.0875 per share, payable to shareholders on 17^th December 2020, with a record date of 3^rd December 2020. 

Financial overview of Q2 2021 

Source: Company 

• In Q2 2021, the company reported revenues of USD 10.7 billion, decreased by 22.1%, as against USD 13.7 billion in the previous corresponding period. The performance was mainly attributable to a lower average road transportation fuel selling price due to low fuel demand owing to COVID-19 impact, offset by strong organic growth on merchandise and service sales.
• The company posted a gross profit of USD 2.5 billion, up by 7.2% in Q2 2021 as against USD 2.3 billion in Q2 2020, primarily due to high gross margins on fuel and strong organic growth in convenience activities.
• Net income in Q2 2021, stood at USD 757 million, against USD 578.6 million in the previous corresponding period primarily due to the reasons above stated. 

Risks associated with investment 

The performance of the company’s business is prone to several risks which include resource supply, suppliers, customers, competition, and foreign exchange exposure. Since COVID-19 directly impacted the company in the first half of 2020, we believe that if the restrictions are not lifted soon, the operations of the company can suffer. The changing consumer preferences and expectations related to eCommerce, online retailing and the introduction of new technologies also features as a potential risk. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

New customers and associated share gains since the start of the pandemic have continued as consumers take advantage of the convenience and proximity of the company’s locations. This led to solid same-store sales growth of 4.4% in the U.S., 8.6% in Europe, and 11.4% in Canada. Despite COVID-19 and associated supply chain disruptions, the group met the target of introducing 1,500 Fresh Food, Fast locations. The company focus remains on the quality and ease of its fresh food offer. Stores with Fresh Food, Fast have been performing very well relative to test stores, and the company is also customizing the offer to meet the tastes and pricing needs of local communities. Based on these results, the group plan to roll out the program in another 3,000 locations in North America by the end of the fiscal year 2022. Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 44.08 on December 4, 2020. We have considered Empire Company Ltd, Loblaw Companies Ltd, Metro Inc, etc. as the peer group for the comparison. 

Source: Refinitiv (Thomson Reuters)

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