Monday, July 23, 2007

Alimentation Couche-Tard

I initiated a position in ATD.B on Friday. I revisited this name shortly after my last Wednesday’s posting “Where is the Value?”. I’ve provided a brief description of ATD.B as well as my reasons for buying:

“Couche-Tard is the largest convenience store operator in Canada with a network of over 2,000 stores in Canada as well as a considerable presence in the U.S., with more than 3,000 additional stores. Over 3,600 of the total number are Company-operated stores and nearly 1,400 stores are operated under our affiliate program. The Company sells fuel in 65% of its Company-operated stores. The Canadian stores are located in Quebec, Ontario, Alberta, British Columbia, Manitoba, Saskatchewan and the Northwest Territories. The U.S. stores are located in 28 states. The stores are primarily operated under the Couche-Tard® and Mac’s® trademarks in Canada and the Circle K® trademark in the U.S."

"In addition to the North American Couche-Tard network, there are approximately 3,500 Circle K licensed stores located in seven other regions worldwide (Japan, Hong Kong, China, Indonesia, Guam, Macao and Mexico).”

-Trailing P/E 20
-2008 estimated P/E 16
-2009 estimated P/E 14.5
-ROA 10.46
-ROE 23.46
-Recession proof industry
-Recognizable and strong brand (I personally like the layout of the Mac stores)
-Stock has been under pressure recently due to declining US fuel margins (at the pump) as well as the integration of the 236 convenience stores purchased from Shell in Dec 2006.
-In my opinion the last couple of quarters were decent despite the unfavourable fuel margins. I believe that when margins turn around these guys will surprise the street.
-TDWaterhouse has a 12 month target price of $28 (up about 30% from current levels)
-Successful history of growing by acquisition (in both Canada and the US)


Anonymous said...

I can not agree more on that! My only regret was to buy it at $24 a couple of months ago. However, as I invest on a long term basis, I do not mind that much!
I think that their liquid assets are making a good predator for the following years. When economy is slowing down, several stores might want to sell at a lower price.

Anonymous said...

I think you'll do quite well on this one. It's a retail company that is often in residential areas and it has good margins (non-fuel merchandise). Like you said, they have stated (via press releass) that they intend to purchase even more stores. I must admit I did not know of them before your post... that damn corporate name... haha.

How long do you typically hold stocks? I'd say this is a long term play

Anonymous said...

Well ideally I'd like to hold the stocks I buy forever. But I would sell if the reason I bought them didn't materialize or they just became ridiculously over-valued. I don't generally set sell target (with the exception of some resource/cyclical companies)

MG (moneygardener) said...

Good buy. I don't follow it, but someone I respect very much and take advice from has recently picked it up for his portfolio.


The word in the heading of the post is a little hard to say.