Earnings season is finally wrapping up. We have a few more companies to talk about this week, especially a pretty surprising quarter from Alimentation Couche-Tard that has investors asking questions as of late.
In addition to this, we have a Bull List removal this week from a struggling growth stock. It is one I still own and will continue to own, but because I’d place the company as a firm “hold” in my opinion, we felt it was best to remove it from the list.
After earnings season settles down, we’ll have a ton of new content in the newsletter, ranging from the completion of our portfolio updates, new Bull List additions and case studies. Even though the markets historically slow down during the summer, we’re not slowing down. We’ve got a ton of content planned.
Key Performance Tool Update
Quite possibly the most underrated tool here at Stocktrades has gotten an update. Our KPI tool, which collects company specific data directly from quarterly reports and displays it to members, has a better interface.
I figure our KPI tool, particularly during earnings season, saves me 10+ hours a week by being able to access company specific key data points you can’t find anywhere else within it.
If you want this data directly from Finchat, you’ll pay over $960 USD a year.
Stocktrades members get it included with their membership.
Although this is the old interface, feel free to watch our tutorial video here
After that, click here to login and access our KPI tool. You can find it under the “Screener” menu option.
My portfolio moves
It was a fairly simple week for me. All I did was add to my Equitable Bank and Alphabet positions within my cash account. I view both these companies as attractively valued right now, especially after Equitable Bank’s first so-so quarter in a long time that caused a dip in price.
The news of Alphabet being close to a deal with Apple to feature its Gemini AI platform in its Apple devices is significant.
As I’ve mentioned numerous times, Alphabet has taken a lot of heat for some slip ups when it comes to its AI platforms as of late. However I don’t invest based on short-term AI headlines. I feel the company will be one of the major players in AI moving forward and I continue to add while the market is pessimistic about it.
The major moves for me will be this upcoming week, as I will be selling my TD Bank and BMO positions and routing the capital into a new 3% position in National Bank. The remaining capital will be split between my current Royal Bank and Equitable Bank positions.
We’ve decided to remove Telus International (TSE:TIXT) from the Bull List
I’d like to preface this by saying I (Dan) currently own Telus International and will not be selling the company. However, my stance on it in light of new guidance has moved from a buy to a pretty firm “hold”. So for this reason, we’re removing it from the Growth Bull List.
With debt levels weighing on the company and policy makers not so certain rates are getting cut anytime soon, it is hitting the bottom line of the company fairly hard.
In addition to this, reduced tech spending coming out of the pandemic is no doubt impacting the company as well. In fact, the company is guiding towards revenue growth of only 3-5% next year.
For a company that has typically grown at a high double digit pace, we can see how impactful the reduction in overall spending has been.
I will still keep members updated with the status of my position in Telus International. Again, I have no intentions of selling at this point, but I won’t be adding either.
It is a firm hold in my eyes, and it will be up to management, with a bit of help from an improvement in sector spending, to turn things around.
Earnings
Alimentation Couche-Tard (TSE:ATD)
For the first time in a while, Alimentation Couche-Tard posted underwhelming results. Q3 earnings of $0.88 per share missed by $0.15, and revenue of $26.63B missed expectations for $28.11B. It marks the first time since Q2 of 2023 that the company has missed on the top and bottom lines.
Same-store sales decreased across all regions, including Canada (-1.2%), the U.S. (-1.5%) and Europe (-0.3%). In contrast, the company saw growth across all these segments last year. Merchandise and service gross margins improved across the board and rose 52 basis points (0.52%) on a consolidated basis, which was lower than estimates.
Same-store fuel volumes dropped in both the U.S. (-0.8%) and Europe (-1.9%), whereas they saw a slight uptick in Canada (0.5%). That said, all were below estimates.
The biggest impact contributing to the earnings miss seems to be the U.S. fuel gross margins, which dropped by 7.8% YoY to 43.19%. In comparison, estimates were calling for a 3.5% increase YoY. The other margins in the fuel segments were more in line with expectations.
When you look at the regions as a whole, while there was weakness across the board, the U.S. segment was particularly weak, a reflection of lower consumer spending.
On the bright side, the company closed on both the MAPCO and TotalEnergies acquisitions. As discussed previously, the latter will increase its European footprint by 80%. It also raised the estimated synergies of the TotalEnergies acquisition by 40%.
On the year, the company repurchased 21.3M shares for total proceeds of $1.4B. Of note, the company may temper share buybacks as it looks to de-lever in the coming months.
While the current debt ratio is high, the company generates strong free cash flow, and debt is still not at all-time highs. In other words, it’s been here before and has successfully de-levered each time. It should also be noted that the company saw strong cost control, with operating expenses down 1.6% on the year, and it expects to continue implementing cost-saving initiatives.
Overall, it was a quarter to forget for ATD, but the outlook remains strong.
Alaris Equity Partners (TSE:AD.UN)
Alaris finished Fiscal 2023 on a high note. The company’s revenue of $241.3M came in line with expectations, and net income of $138.4M topped estimates by nearly 20%.
Although the company’s revenue shrank by 18% on a quarter-over-quarter (QoQ) basis, earnings are up by 17.8% and EBITDA by just shy of 30%. The reason for the sharp drop in QoQ revenue was mostly due to one-off distributions the company received in the fourth quarter of 2022.
On a year-over-year basis, revenue per unit dipped by 14.8% while EBITDA grew by 9.6% and earnings per share by 5%.
The key thing to look at regarding Alaris is the equity partners. After all, the main thesis behind this company is that it partners with companies to provide capital. In turn, those companies pay a distribution back to Alaris, and Alaris distributes a chunk of that to shareholders.
Out of the firm’s 20 partners, 7 saw revenue decline in Fiscal 2023. This may seem alarming at first, but the majority of companies that had declining revenue have strong earnings coverage ratios which likely allows for a bit of a buffer during these difficult economic circumstances.
Remember, Alaris partners with construction companies, contractors, mortgage originators, and more. These are going to be companies that are highly sensitive to the economy.
Overall, 11 of its 20 partners have earnings coverage ratios, which represents the company’s earnings relative to what it owes Alaris, of more than 1.5X.
The company earned $3.05 on the year and paid out $1.36 in distributions. This left an additional $1.28 per unit to add to its book value, which now sits at $21.12, a record for the company.
The company issued revenue guidance for 2024 in which it expects to report $169.6M. This represents mid-single-digit growth and is not all that surprising in this environment.
Keep in mind that any additional capital invested by the company at today’s yields should add around $2.3M to the company’s run rate revenues over the course of the year. So, if it can find opportunities, there is a chance for this guidance to come above expectations.
Overall, with a yield of 8% and, in our opinion, a discounted share price, Alaris continues to look attractive in this environment.
You can view our full report on Alaris here
Automotive Properties REIT (TSE:APR.UN)
APR reported Q4 results that were relatively in line with expectations. Revenue of $23.29M (+11%) aligned with estimates, and Funds From Operations (FFO) per Unit came in at $0.24, meeting consensus estimates.
Cash Net Operating Income came in at $19.3M (+11.9%), and it exited the quarter with 100% occupancy – a rarity in the REIT space. The company is backed by quality tenants, and their reliance on Dilawri was stable at 54% of leases (flat QoQ but down from 60% at the start of the year).
High interest rates continue to damper overall performance as its interest coverage ratio dropped to 1.96x from 2.5x earlier this year. That said, this past quarter 95% of total debt was fixed, an increase of 4% over the previous quarter but a 4% drop from where it was when it began the year.
Debt to gross book value remains healthy at 45%, a slight increase of 50 basis points quarter-over-quarter. Likewise, it ended the year with strong payout ratios as both the FFO (-1.8%) and AFFO (-1.9%) payout ratios dropped year-over-year.
Management has discussed the many acquisition opportunities that exist in this fragmented market. As of the end of Fiscal 2023, it estimates it owns ~12% of the approximately 3,500 dealerships in Canada.
That said, it was another quiet quarter on the M&A front, as no new deals were announced during or after the quarter. It is certainly something to watch if the pace of no deals persists.
Management did say last quarter that they were not starting to see better pricing and, as per management, were being “extremely selective” in their acquisitions. This has been persistent for yet another quarter.
This is one of the key investment theses behind the company, so if it becomes too selective to the point where it stunts growth, it may not bode well for the company. It had a busy first half, so there is no need to be too critical of their lack of activity in Q3 and Q4.
That said, it’ll be a situation to watch over the next few quarters. The company has an attractive yield for income seekers, and its distribution at this point in time is well covered.
You can view our full report on Automotive Properties REIT here
Boyd Group Services (TSE:BYD)
Boyd reported a mixed fourth quarter to close out Fiscal 2023. Revenue of $740M USD topped expectations by around $20M, and earnings of $0.93 USD fell short of estimates for $1.08 per share.
On a quarter-over-quarter basis, the company reported 26% in adjusted EBITDA growth, 36% growth in earnings per share, and same-store sales growth of 16.1%.
Margin expansion continued, as the company reported a 2.7% increase in gross margins to sit at 45.5% while operating expenses only increased by 0.3%.
When we look to the full year, the company put up strong results. Same-store sales growth sat at 15.8%, gross margins increased by 1.8% to sit at 45.5%, and operating expenses declined by 1.5%.
The company reported a 34.6% increase in adjusted EBITDA and a 111% increase in earnings per share. The company is unlikely to grow at this pace moving forward.
We do have to remember we would be comparing Fiscal 2023 to Fiscal 2022, a year in which inflation and supply chain issues had a dramatic impact on Boyd’s operations.
The company opened over 106 new collision repair centers in 2023 and reaffirmed its guidance set back in 2019 to double the overall size of the business by 2025. The company is well on its way to hitting those targets and has just a couple of years left to do so.
The company’s financing costs are currently up around 38.6% when we compare 2023 to 2022. The important thing to note is these financing costs makeup just 1.7% of the company’s total sales and overall are having little impact to the business.
The company released 2024 outlook in which it was relatively cautious. This is not surprising, as the company has been pretty tempered in all of its outlooks post-pandemic. It states that the mild winter this year is having an impact on sales to kick off the year, as there is ultimately less demand for collision and glass repair when the weather is nicer.
The company also mentioned it is working with multiple insurers to increase prices because of the increased costs of goods and services. However, margins still remain below pre-pandemic numbers in terms of labour costs.
It estimates there is over $47.6B USD in revenue in the collision repair industry in North America. It believes car dealerships own 15% of the market, while larger collision repair shops own 36%. This leaves $23.3B~ in revenue outside those two sources.
If we consider the fact that Boyd reported revenue just shy of $3B for 2023, we can see the large-scale potential this company has for growth via acquisition.
