Alimentation Couche-Tard Inc

Alimentation Couche-Tard Inc (TSX: ATD.B) is a General Retailer 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.

The company recently announced that its subsidiary acquired 13,146,469 common shares of Fire & Flower Holdings Corp., representing 7.40% of total outstanding shares.

Q1FY21 Financial Highlights: The group announced its quarterly results, wherein the company posted a lower revenue of USD 9,709.8 million, as compared to USD 14,163 million in the previous corresponding period (pcp). The decline was primarily attributable to a lower aviation fuel sale coupled with a negative impact from the translation of its Canadian and European operations into US dollars. The company reported gross profit of USD 2,511 million, increased from USD 2,309 million in Q1FY20. The increase in gross profit was driven by higher road transportation fuel gross margin and organic growth, which was partly offset by the negative impact of COVID-19 on fuel demand. Operating income stood at USD 1,059.3 million, improved from USD 751.7 million. The quarter was marked by a lower operating, selling, administrative and general expenses and lower depreciation, amortization and impairment expense. Net earnings stood considerably higher at USD 777.1 million, as compared to USD 536 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Reports)

Risks: The company is exposed to risks including fluctuations in margins on motor fuel sales, competition in the convenience store and retail motor fuel industries, and exchange rate variations.

Valuation Methodology: P/E Based (Illustrative)

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

Stock Recommendation: The stock of ATD.B stood resilient in the recent past and increased ~13% so far this year. The company is focusing on strategic vision by developing a unique customer experience, both within the stores and as well as in fuel courts in order to adapt the changing customer needs. On a longer-term perspective, the company is focusing on doubling its existing operations. The company has ample liquidity of USD 5.8 billion through the available cash and revolving unsecured operating credit facility, which seems sufficient to cater to the near-term requirements. The company witnessed an increase in the shopping occasions aided by strong same-store merchandise sales of 7.7% in the U.S., 19.9% in Canada, and 3.4% in Europe, which is commendable. We expect the momentum to continue, as the Governments opens up the broader economy. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price, which suggests a higher single-digit upside potential (in % terms). For the said purpose, we have considered Metro Inc, Empire Company Ltd and Loblaw Companies Ltd, etc., as a peer group. Hence, considering the above factors, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 46.37 on September 30, 2020.

ATD.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CCL Industries Inc.

CCL Industries Inc. (TSX: CCL.B) manufactures and sells packaging and packaging-related products. The company operates through various segments which include The CCL segment, which generates the majority of revenue, sells pressure sensitive and extruded film materials used for labels on consumer packaging, healthcare, automotive, and consumer durable products.

Q2FY20 Financial Highlights: CCL Industries Inc. announced its quarterly results, wherein the company posted sales of CAD 1,221.9 million, lower than CAD 1,354.2 million in the previous corresponding period (pcp). The decline was primarily attributed to a lower income from CCL, Avery and Checkpoint segments, while higher income from Innovia supported the company’s top-line. The company reported gross profit of CAD 327.5 million, as compared to CAD 385.2 million in pcp. The quarter was marked by lower selling, general and administrative expense, lower finance costs which marginally supported profitability. Earnings before income tax stood at CAD 138.2 million, as compared to CAD 162.5 million in pcp. Net earnings stood at CAD 103.9 million, as compared to CAD 121.3 million in Q2FY19. The company ended the quarter with cash and cash equivalent of CAD 619.4 million, while total assets stood at CAD 7,338.1 million.

Q2FY20 Income Statement highlights (Source: Company Reports)

Risks: The company is exposed to a variety of key risks including the adverse impact of the COVID-19 pandemic, the impact of competition; consumer confidence and spending preferences; general economic and geopolitical conditions; currency exchange rates; interest rates and credit availability.

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 CCL.B corrected ~7% so far this year. Investors should note that the stock was trading above the 200-days simple moving average (SMA) of CAD 47.65, indicating a bullish trend. CCL Segment profitability was down slightly, despite a 6.1% organic sales decline. Both CCL Design electronics and Healthcare & Specialty recorded significantly improved results on share gains plus higher pandemic-related demand for IT peripherals and over the counter medicines.  Home & Personal Care profitability increased as sales declined modestly on lower tube demand for prestige skincare and cosmetic brands sold in specialty retail channels. Labels were up slightly on strong demand for skin sanitizers and cleansers with solid growth in the United States. Meanwhile, due to the closure of non-essential retail outlets globally and apparel manufacturing hubs in Asia, the performance of Checkpoint was impacted. We expect the reopening of major economies across the Asia region is likely to support the checkpoint segment’s future growth. We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target upside of higher single-digit (in percentage terms). For the said purposes, we have considered peers like Winpak Ltd, Aptargroup Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 51.34 on September 30, 2020.

CCL.B Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.