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.
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.
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
