Alimentation Couche-Tard Inc

Strong Store Presence and Operational Efficiency to Drive Performance: Alimentation Couche-Tard Inc. (ATD.B: TO) is an independent convenience store operator across Canada, U.S., Europe and other Scandinavian countries. The business has a network of more than 14,800 stores across the globe. On 12^th February 2020, the company informed that it had made a revised non-binding, indicative offer to acquire 100% of Caltex Australia Limited by way of scheme of arrangement at a cash price of A$35.25 per ordinary share, decreased by any dividend declared or paid to Caltex shareholders prior to the execution of the transaction.

Growth Drivers:

• The group has solid pipeline of current initiatives which would enable it to sustain healthy organic growth.

• ATD has a long track record of successful integrations and synergy capture. The group continue to look for inorganic opportunities across the globe with primary focus on Asia and the United States.

• The business follows a decentralized model and cost discipline along with lean operations would enable the group to generate strong cash flow, which in turn would support the capex and growth plans. 

• S. fuel margin grew from 17.1 cents per gallon (cpg) in 2009-2013 to 21.7 cpg during 2014-2018. The rising breakeven point for single-store and small-chain operators are contributing to higher overall fuel margin.

Delivered Good Quarterly Results for the 16-week Periods Ended 2^nd February 2020 (in millions of US$)

(Source: Q3 FY20 Reports, Company Website)

ATD came up with its quarterly results, wherein the company reported revenue of US$ 16,604.2 million, witnessed a marginal growth of 0.5% as compared with the corresponding quarter of fiscal 2019, majorly attributed by higher average road transportation fuel selling price and organic growth which was partly offset by disposal of the interest in CROSSAMERICA PARTNERS LP (CAPL). Gross profit stood at US$2.8 billion, down 0.6% on a y-o-y basis. Operating, selling, administrative and general expenses for Q3 and first three quarters of fiscal 2020 reduced by 5% and 5.2%, respectively. The group reported strong EBITDA growth of 11.5% on a y-o-y basis to US$1.3 billion in Q3 FY20. 

Valuation Methodology: EV/EBITDA Based Relative Valuation

 Stock Recommendation: The stock of ATD.B closed at CAD 33.97 with a market capitalization of ~CAD 38.25 billion. The stock made a 52-week low and high of CAD 31.02 and CAD 46.10, respectively. The stock has corrected by 19.27% and 16.19% in the last three months and six months, respectively. Considering the aforesaid facts, strong EBITDA growth and worldwide store presence, we have valued the stock using EV/EBITDA based relative valuation method. For this, we have considered peers like Loblaw Companies Ltd (TO: L), Sysco Corp (TO: SYY), Metro Inc (TO: MRU), etc., and arrived at a target price which is offering a lower double-digit upside return (in % terms).  Hence, we give a ‘Buy’ recommendation on the stock at the closing price of CAD 33.97, up 0.90% as on 18^th March 2020 closing.

ATD Daily Technical Chart (Source: Thomson Reuters)

Westshore Terminals Investment Corporation

Customer to Addition to Business Growth: Westshore Terminals Investment Corporation (TO: WTE) provides coal storage and loading terminal services at the Roberts Bank, British Columbia which is the largest coal loading facility on the west coast of the Americas.

Key Business Highlights and Business Outlook:

• During FY19, the group made short term contracts with new customers being introduced to the Terminal. Further, the group informed has received reservation payments from two companies which are developing metallurgical coal mines in Alberta and British Columbia.
• The group has completed the single largest capital projects, which was started during 2019. The company has successfully executed the project within the budget and on schedule without incurring any debt.
• The group anticipates its FY20 throughput volume at around 30.5 million tons at rates comparable to FY18 rates. For Q1FY20, the company expects a shipment of more than 7.5 million tonnes, as compared to 7.0 million tonnes in the previous corresponding period. The company managed to improve its shipment on y-o-y basis, despite severe winter conditions as well as disruptions from protests, impacting overall throughput.

FY19 Financial Highlights for the Period ended 31^st December 2019: WTE came up with its full year results, wherein the company’s reported total revenue stood at CAD 395.4 million, as compared to CAD 363.4 million in FY18. The company has derived its 66% of the volume from steel making coal, an increase of 9 percentage points against 57% in FY18, while the rest was derived from thermal coal (34%). The business reported coal shipment of 31.0 million tonnes, marginally up from 30.5 million tonnes in FY18. Average loading rate for FY19 stood at CAD12.49 per tonne, as compared to CAD11.69 per tonne for FY18. The group reported its net profit of CAD139.4 million, increased from CAD122.1 million in FY18, driven by revenues growth which was partially offset by higher operating costs and income taxes.

Source:CompanyReport(FY19IncomeStatement)                                                                                                                    

Valuation Methodology:

*Note: All the forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  Westshore is well positioned to handle a range of bulk commodities in addition to coal and going forward, we expect, irrespective of the macro factors, the business is likely to retain its performance due to increased average loading rate and addition of new clients.

However, amid prevailing downtrend in the broader market, shares of WTS have plummeted too. But, future roads for the group look decent as its clientele is expanding and average loading rates is also increasing.

Also, the group’s financial performance has improved in FY19 compared to the corresponding previous period, with revenue increased by ~8.1% against FY18, pre-tax profit improved by 12.4% on a YoY basis, and post-tax profit surged by 14% against the corresponding previous financial year.

Moreover, its shares are offering a lucrative dividend yield of 4.6%, which is decent for an income investor point of view amid lower interest rate regime.

We have valued the stock using Price/Cash Flow multiple and given a “Buy” recommendation at the closing price of CAD 13.74, down 5.04% as on 18^th March 2020 based on the NTM Industry Average Price/Cash Flow multiple of 6.8x.

WTE Daily Technical Chart (Source: Thomson Reuters) 

Note: All the forecasted figures and Peers are taken from Thomson Reuters, NTM: Next Twelve Months

Disclaimer

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