Couche-Tard, the owner of Circle K, is looking for a deal worth up to $15 billion.
If Couche-Tard made a large acquisition, "we believe the shares would respond favorably given a strong track record of integrating deals," according to National Bank Financial analyst Vishal Shreedhar in a note. The net debt of the company is only 1.3 times its earnings before interest, taxes, depreciation, and amortization.
What Bloomberg Intelligence Has to Say
Alimentation Couche-strategy Tard's of achieving up to $6.3 billion in adjusted Ebitda by fiscal 2023 by balancing M&A and organic sales growth could spark a deal as soon as $16 billion of balance-sheet capacity is available for a large purchase. The company is concentrating on areas of growth in order to improve merchandise mix and generate 2-4% same-store sales growth. Couche-Tard could reach 80-85% of its profit target organically, which, combined with an advantageous asset selection, could push it over the finish line.
Diana Rosero-Pena, a Bloomberg Intelligence analyst
Click here to read the entire report.
The best quarter
Couche-record Tard's quarterly profit for the quarter ended July 17 was aided by rising gasoline prices.
Fuel revenue increased 52% year on year in the fiscal first quarter, while margins expanded. The company earned $872 million, or 85 cents per share, well above the 73 cents predicted by analysts.
In the third quarter, transportation fuel accounted for more than three-quarters of the company's sales. Total gross profit increased by 25% in that segment, while it remained flat in convenience stores. Consumers are spending less on food and looking for value, which is fueling growth in private-label brands in stores, according to Hannasch. The Circle K brand is owned by the company.
Couche-Tard shares have risen 7% this year, outperforming the market. Couche-Tard, which attempted to buy grocery chain Carrefour SA but was rejected by the French government in 2021, has been mentioned as a potential bidder for a portion of Suncor Energy Inc.'s Petro-Canada gas station chain.
Analysts estimate that if Suncor decides to sell, it will fetch more than C$10 billion ($7.6 billion), but Couche-Tard would be unable to acquire all of Petro Canada's 1,500-plus sites due to antitrust concerns.
Read more: Singer's Elliott Wins as Suncor Considers Retail Sale
Hannasch believes there is still room for expansion in Couche-home Tard's country.
"There are certainly parts of Canada where we would love to grow," he said in an interview. "Especially the west, where we have a much smaller market share than we would have in Ontario, the Atlantic provinces, and Quebec." After agreeing to sell 47 sites to satisfy antitrust regulators, the company has recently acquired more stations in Eastern Canada.
Executives at the Laval, Quebec-based company told analysts on Wednesday that the combination of high inflation, slowing growth, and an uncertain economic direction could create large deal opportunities in the United States and Europe.
Alimentation Couche-Tard Inc. of Canada has the financial resources to make a $10 billion to $15 billion acquisition, and its CEO believes that disruption in the global economy will pave the way for a large transaction.
"I'm hoping that the uncertainty that exists today creates an environment in which we can be acquisitive," said Chief Executive Officer Brian Hannasch. "The balance sheet is in good shape and ready to go."
