Alimentation Couche-Tard: A Canadian Compounder With Plenty Left In The Tank

Summary

• Alimentation Couche-Tard has been a 100 bagger over the last two decades, but the company isn't done growing yet.
• The company and management's strong track record give the company invaluable experience and a competitive advantage over competitors.
• Alimentation Couche-Tard is getting into electric charging stations, building a solid moat for the eventual electrification of global transportation.
• The valuation is currently near historical levels that should serve shareholders well going forward.

Introduction

Alimentation Couche-Tarde (OTCPK:ANCUF) is a Canadian based operator of convenience stores and gas stations around the world. The company has intelligently used debt to make many significant acquisitions, propelling the stock to the rare, yet coveted, 100 bagger status over the last 20 years. Management has done extremely well compounding the company's profits and shareholder returns, especially considering the company operates in a fairly low growth industry.

And yet, the company continues to trade at very reasonable multiples. This has not been a story of multiple expansion, leaving shareholders in a position to capitalize on further value creation that the company can now take advantage of due to its leading market position and experience.

Data by YCharts

Where The Company Sits Today

Alimentation Couch-Tard has put up some of the best shareholder returns in the stock market through a combination of organic sales growth and astute acquisitions. The company now operates or licenses over 16,100 stores, mostly across North America and Europe, although nearly 2300 stores exist in other markets as well.

Source: October 2019 Investor Presentation

The company utilizes a strategy of taking on debt to finance acquisitions that can then provide cash flow to be used to pay back down the debt and reduce leverage over time. Once leverage gets to relatively low levels, the company once again looks for larger acquisition. Management has successfully avoided the trap of paying too much just to increase store count, something too many public companies tend to fall into. I expect this company to continue using this strategy going forward for the foreseeable future. Thus if you don't like debt, this may not be the stock for you. On the other hand, savvy investors will realize that debt benefits the company greatly when used properly and is what will allow this company to continue expanding in the future. Shareholders are better off because of the usage of debt, rather than raising money by diluting shareholders.

Currently, Alimentation Couche-Tard is looking to acquire Australian convenience store chain Caltex. This would be the company's first venture into the Australian market and would add another 2000 locations to Alimentation Couche-Tard's store count, but once again, the price has to be right.

The Company Going Forward

The key risk many are quick to point out is the continued electrification of transportation and the obvious resulting consequences for gas stations. Alimentation Coche-Tard is well aware of this, and as such has ventured into the charging station business, starting in Norway. Norway has the highest electric vehicle penetration rates in the world, which will allow Couche-Tard to experiment and learn, before rolling out charging stations around the world. It also could create a significant competitive advantage for the company in the form of experience. It remains to be seen how much of the company's fuel sales can be replaced by electric charging, as there is always the charging at-home option for consumers, but even that is a market Alimentation Couche-Tard is looking to enter. Furthermore, having to wait at a charging station for 20-30 minutes will only incentivize more consumers to come into convenience stores while they wait and make purchases.

Source: October 2019 Investor Presentation

Valuation

Alimentation Couche-Tard is currently trading near its normal P/E since 2012 of around 19. The FASTgraph below shows this (the black line represents the current share price, while the blue line is the price at the normal P/E since 2012). Shareholders should continue to do well with this company at this valuation. The company is also trading at a fairly low to average historical price to sales multiple (blue line in the second graph below). Plenty of opportunities remain for Alimentation Couche-Tard as the U.S. remains a fairly fragmented market, and international opportunities provide room for increased penetration across all markets.

Source: FASTgraphs

Source: FASTgraphs

Conclusion

Alimentation Couche-Tard is a wonderful company with a great, proven management team. The company continues to search for accretive acquisitions and make the most of stores they already own. The valuation is currently sound as well, and is more attractive if the stock declines with the overall market. It's tough to find companies with as much growth as Alimentation Couche-Tard trading for under 20 times earnings. A growing dividend also makes the company attractive for dividend-growth investors. In my opinion, now is not a bad time to pick up some shares of this capital compounder.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.