Profit From Well Executed Acquisitions…

Alimentation Couche-Tard is a Canadian blue-chip stock and operates more than 16,000 convenience stores worldwide. It is the largest convenience store operator in the U.S., by the number of company-operated stores. Alimentation Couche-Tard runs more than 9,900 convenience stores throughout North America and over 2700 stores in Europe. In addition, the company also operates more than 2,100 stores under the Circle K banner in 14 other countries and territories under licensing agreements.

The company also supplies road transportation fuel to approximately 1,300 locations in the U.S. and offers stationary energy and aviation fuel. Couche-Tard caters to more than 9 million global customers daily, offering them merchandise and services (55% of 2018 revenues), motor fuel (43%) and other (2%).

As a leading independent convenience store operator, Couche-Tard has a large presence in 48 states in the U.S., ten provinces in Canada. By geography, the U.S. is its largest market accounting for 67% of 2018 revenues, followed by Europe (20%) and Canada (13%). The company operates through Couche-Tard and Mac’s brands in Canada and Circle K globally.

Investment Data

Revenue Growth & Market Exposure

With nearly four decades of experience, Couche-Tard has adapted to the changing customer habits and preferences and has a sound track record of successful acquisitions over the last decade. The company’s latest acquisition of Holiday network in the U.S. has strengthened its footprint in the high quality food offering. It is expanding its food business and plans to add 500 onsite bakery stores in Canada. Food, beverage, car wash and fuel are Couche-Tard’s key product categories. Its car wash is an important business in more than 2600 locations worldwide. Its Esso and Holiday acquisitions have also expanded its car wash footprint in North America

Starting out with just one store four decades back, today Couche-Tard has a successful chain of convenience stores in 25 countries and regions with a recognized brand name. Over the last six years, the company has successfully integrated with large networks such as Statoil Fuel & Retail, Topaz Energy Group, Imperial Oil stores expanding its Canadian network. Its Circle K brand carries a strong reputation with a loyal customer base in Scandinavian and Baltic countries.

Alimentation Couche-Tard is expanding globally. It added 90 new franchise sites in North America and more than 200 across Central America and the Middle East, last year. The company is well placed to benefit from the emerging trends of e-mobility. It is planning to set up a network of 400 charging stations for battery electric vehicles in accordance with a JV of several automakers. Alimentation Couche-Tard’s fuel business is one of its other successful businesses, registering 21% volume growth in the last five years.

The company is investing in technology to digitize its supply chain and other business lines and improve the overall customer experience. It is expecting to drive future growth from Asia. Alimentation Couche-Tard is growing aggressively and has entered into master license agreements with Cambodia, Saudi Arabia, and Mongolia.

Dividends

Alimentation Couche-Tard is a Canadian dividend aristocrat. Its dividend yield stands at 0.59% while its dividend payout ratio is very low at 11%. Couche-Tard has grown its dividend payouts at 24% CAGR over the last ten years and its last dividend hike was 25%.

The company should benefit from the successful integration of its recent acquisitions for the remainder of 2019. Well-diversified operations across geographies, strong focus on growing high margin categories and scalable rollout of new global convenience brand Circle K should drive growth and aid future dividend hikes.

The convenience store sector is highly fragmented in the U.S. and Alimentation is favorably positioned to gain from its increased acquisition activities. The company is growing organically as well as through acquisitions and has a sound track record of successful acquisitions over the last decade. Couche-Tard has registered a double-digit CAGR over the last six years in its major businesses. It has also grown its number of convenience stores rapidly over the years to over 16,000 now, from just 500 stores two decades ago.

Investment in digital platforms, strategic acquisitions, aggressive expansion plans and a strong presence in the retail industry are the company’s key competitive advantages.

Growing demand for food should act as a tailwind for this Dividend Aristocrat. A proven business model, an extensive store network, and a reputed brand name form a deep moat around Alimentation Couche-Tard’s business. There are plenty of opportunities for the company to diversify and cross-sell its products.

Competition

Alimentation Couche-Tard faces competition from convenience store chains, gas station operators, food retailers, QSRs, pharmacy chains, etc. both locally as well as internationally. In Europe and Canada, the convenience store sector is dominated by a few major players. However, it will be difficult for newcomers to compete with the company’s operational scale and large geographical footprint.

It enjoys a leading market position in a majority of the markets it serves. George Weston, Loblaw Companies, North West Company, and Metro Inc. are Alimentation Couche-Tard’s top competitors. George Weston is a leading food processing and distribution company in Canada while Loblaw Companies ranks amongst Canada’s largest retail companies. Unlike its peers, Couche-Tard’s business is relatively immune from the significant growth of e-commerce businesses such as Amazon.com as most of its merchandise is consumed within an hour of the purchase.

Bottom Line

As a leading global retailer, the company benefits from its proprietary product portfolio, unique food and beverage offerings, a large and expanding geographic footprint and an iconic brand name. Increased activities around acquisitions and expansion further strengthens the company’s footprint and positions it well to continue its dividend paying streak in the future.

Couche-Tard cornered a market with high profit margins and through acquisitions has positioned itself as a leader across many countries. The company has had a phenomenal growth and it’s probably normal for the growth to slow down but with a low dividend payout ratio, the dividend growth is not a risk but I could see it in the 10% rather than 20%.

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