Loblaw Companies Limited

Loblaw Companies Limited (TSX: L) is one of Canada's biggest retailers and has more than 1,050 grocery stores. The company is also a leading food retailer and is also engaged in selling general merchandise under different banners and also operates full-service pharmacies.

Recently, the company confirmed its collaboration with Canada Health Infoway which offers Shoppers Drug Mart, Loblaw retail pharmacies and QHR Technologies' AccuroEMR®, to work towards connecting with PrescribeIT®, Infoway's national e-prescribing service.

Q2FY20 Financial Statement Highlights: Loblaw announced its quarter results wherein the revenue reported at CAD 11,957 million, improved from CAD 11,133 million in the previous corresponding period (pcp). The period was marked by considerable growth in the retail segment which stood at CAD 11,768 million, representing a growth of 7.9% y-o-y basis, aided by same-store sales growth in Food retail of 10% on y-o-y, while a 1.1% decline in the drug retail segment remained a drag. Operating income, during the quarter, came at CAD 404 million, reflecting a decline of 31.3% on y-o-y basis. Adjusted EBITDA stood at 1,016 million, reflecting a downfall of 13.5% from the previous corresponding quarter. During the quarter, the company invested CAD 199 million in capital expenditures and generated CAD 334 million of free cash flow. The company reported net income of CAD 172 million, against CAD 289 million in the previous corresponding period (pcp). The quarter witnessed an increase of CAD 282 million in cost due to COVID 19 pandemic, which includes CAD 180 million related to compensation costs, inclusive of the one-time bonus for store and DC staffs of CAD 25 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to an increase in the several costs on account of COVID 19 pandemic, the company might witness margin pressure in the coming days.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock of L stood resilient in the recent past and appreciated ~1.5% YTD and outperformed the benchmark index by 5%. The company is focusing on expanding its digital capabilities and made investments in its Everyday Digital platforms which offers shopping in-store, or online with either home delivery or convenient pickup locations for their customers. As a result, the group witnessed robust traction in its e-commerce segment, where sales grew by 280% on y-o-y basis. The company expects the momentum to continue in its e-commerce segment and is likely to invest in expanding capacity and enhancing its same-day service offering, which augurs well for improvement of operational efficiency of the business. The company seems to have ample liquidity thanks to a strong balance sheet and the ability to generate significant cash flow from its operations. The aggregate available liquidity was approximately CAD 4.6 billion, which include CAD 2.6 billion in cash and cash equivalent. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a lower double-digit upside potential (in % terms). For the said purpose, we have considered Metro Inc, Alimentation Couche-Tard Inc, and Empire Company Ltd etc. as a peer group. Considering the aforesaid facts, current price levels, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 67.97 on September 3, 2020.

L Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Alimentation Couche-Tard Inc

Alimentation Couche-Tard Inc (TSX: ATD.B) is a General Retailers Company based out of Canada with a focus on convenience store market. The Company is engaged in the business of selling road transportation fuel, goods for immediate consumption and other products through franchise and stores operations. ATD.B sells products under multiple banners across the Baltics, Scandinavia, Ireland and North America.

Financial Highlights – Q1 Financial Year 2021 (19 July 2020, USD, million)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2021, due to lower road transportation fuel revenue, the revenue declined to USD 9,709.8 million (Q1 FY2020: USD 14,163 million). Driven by lower cost of sales and operating expenses, the gross profit improved to USD 2,511 million (Q1 FY2020: USD 2,309 million) and operating income improved to USD 1,059.3 million (Q1 FY2020: USD 751.7 million) in the first quarter of FY2021. Reflecting higher operating income, the PBT (profit before tax) increased to USD 979.8 million in Q1 FY2021 (Q1 FY2020: USD 671.3 million. The net earnings attributable to shareholders stood at USD 777.1 million in the first quarter of the financial year 2021 (Q1 FY2020: USD 538.8 million). The basic and diluted earnings per share stood at $0.70 in Q1 FY2021 (Q1 FY2020: $0.48). The cash balance as on 19 July 2020 slightly declined to USD 3,269.8 million (26 April 2020: USD 3,641.5 million). The total assets as on 19 July 2020 stood at USD 26,275.7 million (26 April 2020: USD 25,679.5 million).

Share Price Performance

1 Year technical chart. Source: Refinitiv (Thomson Reuters)

Alimentation Couche-Tard Inc shares closed at CAD 45.66 at the time of writing after the market close on 3 September 2020. Stock's 52 weeks High is CAD 47.49 and Low is CAD 30.40.

Key Risks

The outbreak of Covid-19 pandemic resulted in disruption in financial markets, world economy, regional economies and supply chain, which impacted negatively on the financial and operational performance. Liquidity and interest rate risk could affect the operations of the Company. The revenues from road transportation fuel business severely impacted due to imposed lockdown.

Conclusion

The Company has shown an improvement in financial performance in the first quarter of the financial year 2021. The Company managed operating expenses effectively during the period. The Company has a well-positioned balance sheet despite the slight decline in liquidity position. ATD.B is adapting quickly to the impact of covid-19 to serve customers better in the remaining financial year 2021. The Company is progressing well toward strategic vision through the development of differentiated customer experience to meet changing needs. The Company is reaching close to its 5-year plan of doubling the business. The Company is in a robust position to face the pandemic based on a solid foundation

Based on the above rationale, we have given a “Hold” recommendation for Alimentation Couche-Tard Inc at the closing price of CAD 45.66 (as on 3 September 2020).

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.