Alimentation Couche-Tard (Symbol ATD, was ATD.B)

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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by AltaRed »

I think ATD could certainly add EV charging stations to their mix as demand increases (and it would seem natural to do that) but they won't have the monopoly by a long shot. People just don't want to spend that much time, e.g. 20-30 minutes, shopping in a convenience store. I think most EV stations will occur where customers linger longer, e.g. supermarkets, places of work, etc.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by ig17 »

EVs are massively bearish for ATD. You don't need a charging station for local driving. You can do a full charge at home while you sleep. For most people, local driving represents the bulk of their annual mileage. You commute to work, you buy your groceries, etc. Nightly home charging can easily cover that. New Chevy Bolt has a city driving range of 410km.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by AltaRed »

Certainly most people will charge at home. That is what a local resident does. Was the reason I'd been dithering on whethere ATD maybe was heading into the buggy whip sector.

But it will be a long time for EV to have a material impact. Norway has spent a fortune on EV promotion over the last several years and has just over the last two months gotten to where registrations of new EV and hybrid vehicles combined now exceed new HC fueled vehicles. North America will need massive investments in electrical transmission and distribution to handle the highly unpredictable loads associated with EV charging.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Peculiar_Investor »

AltaRed wrote:North America will need massive investments in electrical transmission and distribution to handle the highly unpredictable loads associated with EV charging.
If that's your investment thesis about ATD, doesn't that give you something to consider as to how to benefit from this transition. Follow the "trickle down" effect (pun intended).
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by AltaRed »

Indeed. I can find elecrical generation but electrical transmission is trickier.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by FinEcon »

brad911 wrote:I agree with everyone!

I've never been able to justify the valuation BUT if I were to see them develop a plan for implementing charging stations or infrastructure for EV's then I could justify the current valuation easily. Long-term companies are going to need to offer fuel in various forms and the locations will be key.
Not specific to you Brad but since you brought it up, I'll outline how I frame my thinking around it in case it helps anyone in terms of long term value proposition.

The fuel charging station thing can take on a few forms and it really depends on how it plays out in terms of timeline and effects on ATD:
1) EVs fail, no effect
2) EVs take market share slowly, ATD responds well, effect minor negative
3) EVs take market share slowly, ATD responds poorly, effect major negative
4) EVs take market share quickly, ATD responds well, effect minor negative
5) EVs take market share quickly, ATD responds poorly, effect major negative
6) repeat 2-6 for replace negative with positive

As you can see there are a ton of possible outcomes and this is even before we get to the biggest offsetting factor which really only stems from major negative outcomes IMO. And now we winnow that 'negative' window down even further by an assumption that makes logical sense:
1) higher density locations will be more effected by EVs than commuter (suburban/highway) locations

And now we have that, we move to the very long run response which is a sale or repurpose of the property to another use when a gas station is no longer economic at a given location. If you have no idea what goes into that analysis, he's a 2 minute big picture primer: https://en.wikipedia.org/wiki/Highest_and_best_use

In most municipalities, gas stations tend to be a difficult use to obtain and more often they're permitted along with many, many other uses for the property's current zoning. Refer to your local muni's bylaws to get the details of what I'm stating or a do a simple thought experiment 'where there was once a gas station, what's there now?'. Like other premium location spots, they inevitably redevelop to a much higher value use. It's the little things that add up across a portfolio, for instance, gas stations are almost always located on corner sites and corners command a local premium. In any case, the primary downside to re purposing gas stations is environmental framework which adds significant delay to the turnaround timeline. But that speaks more to liquidity than value.

I'm rambling now but the point is that, in the very long run, ATD's geographically diversified but premium local real estate portfolio is effective downside protection against a whole range of doomsday scenarios for the convenience business or some significant sub segment of it.

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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by ig17 »

FinEcon wrote:In most municipalities, gas stations tend to be a difficult use to obtain and more often they're permitted along with many, many other uses for the property's current zoning. Refer to your local muni's bylaws to get the details of what I'm stating or a do a simple thought experiment 'where there was once a gas station, what's there now?'.
I can think of only one example in my part of town. A gas station got converted to a quick lube place. EVs would kill that too.
FinEcon wrote:Like other premium location spots, they inevitably redevelop to a much higher value use. It's the little things that add up across a portfolio, for instance, gas stations are almost always located on corner sites and corners command a local premium. In any case, the primary downside to re purposing gas stations is environmental framework which adds significant delay to the turnaround timeline. But that speaks more to liquidity than value.
Let's say that you are right and the bolded part is correct. Close a gas station and redevelop it to a much higher value use. Are they doing it now? If not, why not?
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Thegipper »

ig17 wrote:
FinEcon wrote:In most municipalities, gas stations tend to be a difficult use to obtain and more often they're permitted along with many, many other uses for the property's current zoning. Refer to your local muni's bylaws to get the details of what I'm stating or a do a simple thought experiment 'where there was once a gas station, what's there now?'.
I can think of only one example in my part of town. A gas station got converted to a quick lube place. EVs would kill that too.
FinEcon wrote:Like other premium location spots, they inevitably redevelop to a much higher value use. It's the little things that add up across a portfolio, for instance, gas stations are almost always located on corner sites and corners command a local premium. In any case, the primary downside to re purposing gas stations is environmental framework which adds significant delay to the turnaround timeline. But that speaks more to liquidity than value.
Let's say that you are right and the bolded part is correct. Close a gas station and redevelop it to a much higher value use. Are they doing it now? If not, why not?
Not sure they should be converting. Oil consumption is at record consumption. Europe produced 22 million vehicles this past year. The USA produced close to 18 million vehicles . Both are into record territory. The new climate change religion might not be as powerful as the media paints it.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by ig17 »

Thegipper wrote:
ig17 wrote:
FinEcon wrote:In most municipalities, gas stations tend to be a difficult use to obtain and more often they're permitted along with many, many other uses for the property's current zoning. Refer to your local muni's bylaws to get the details of what I'm stating or a do a simple thought experiment 'where there was once a gas station, what's there now?'.
I can think of only one example in my part of town. A gas station got converted to a quick lube place. EVs would kill that too.
FinEcon wrote:Like other premium location spots, they inevitably redevelop to a much higher value use. It's the little things that add up across a portfolio, for instance, gas stations are almost always located on corner sites and corners command a local premium. In any case, the primary downside to re purposing gas stations is environmental framework which adds significant delay to the turnaround timeline. But that speaks more to liquidity than value.
Let's say that you are right and the bolded part is correct. Close a gas station and redevelop it to a much higher value use. Are they doing it now? If not, why not?
Not sure they should be converting. Oil consumption is at record consumption. Europe produced 22 million vehicles this past year. The USA produced close to 18 million vehicles . Both are into record territory. The new climate change religion might not be as powerful as the media paints it.
I didn's say they should be converting. FinEcon claimed that it would possible to convert to a much higher value, should EVs kill internal combustion vehicles. If that's true, why aren't they doing it now? That's a question to FinEcon.

I happen to think they don't have a viable Plan B in the scenario where EVs gain mass acceptance.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by AltaRed »

EVs will take a massive shift in investment to become a significant part of the transportation mix in the next decade (or more). Norway is a good case study of the size of the commitment of public money. I don't see that kind of commitment happening elsewhere any time soon. Gasoline comsumption may slowly erode but it will be the mom and pop stations that fail first. ATD likely has more time to run than I have investment time left.

P.S. FinEcon is right wrt municipal zoning 'uses'. There are a lot of optional uses for most of these sites albeit it would be costly and time consuming to switch.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Profit not Prophet »

To far ahead to worry about. It's all next quarter or next year at most. I think the market will absorb my few hundred shares when the time comes. Me not Buffett.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Profit not Prophet »

While I'm thinking of it. Read a weird thing about Quebec. Seems they are starting to completely ban car washing at home. Various municipalities puting in laws against it to curb soaps and run offs etc. So seems ATD is adding carwashes in various spots. I've not googled it up but took the story from some business source at face value. I recall seeing a carwash in Paris by a metro station we exited near our hotel...11pm lined up 6-8 cars waiting. Was almost as odd as the dude roasting corn in a shopping cart. Maybe something to add for the stores, corn goes with hotdogs eh.

We live in strange times.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by FinEcon »

My earlier post was intended to share a bit of my overall valuation framework, particularly with respect to a specific longer term downside scenario which is itself a small portion of the overall thesis in this case. It was really intended more towards those who do a DCF analysis and may have been worried about a lack of or minimal terminal value which is, in my view not an issue because ATD has significant, tangible, reasonably liquid, net asset value in it's real estate holdings in the unlikely event gas stations go dodo bird quickly. Also to consider the fact timeline comes into play to further mitigate downside. The average age of motor vehicle on the road in North America is in excess of 10 yrs so that as a starting point for the terminal period is highly pessimistic IMO.

If highest and best use didn't make sense to you, just think of it in qualitative terms and ask yourself:
1) do gas stations tend to have good locations (high visibility, high traffic, good access, etc)?
2) what are the primary determinants of real estate value, might location be one of those things?
If you do this, you will come to the conclusion that gas stations tend to occupy the best low density real estate. If you are still unconvinced, just think about the other location premium businesses that have started pairing up with gas stations, namely quick service and car washes.

I'm not looking for an internet argument with anyone, I'm trying to help others who are presumably looking to invest or have invested directly in the equity of ATD think about some fundamental issues with respect to that firms ongoing and long term economic situation.

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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Londoncalling »

I have had ATD on my radar for 5+ years. I have watched the yield shrink and the Share price rise. It remains on my watchlist. The reality (and its probably already been stated on this thread) is that these companies do not make their profits from fuel sales. Fuel margins are very thin. They make money from convenience store sales(larger margin), real estate appreciation and rent from the adjoining businesses. As big box retail diminishes the fast food, quick service companies will flock to the gas/EV stations (or vice versa). to my knowledge you can't buy a tank of fuel, a coffee, slush, donut or sandwich online and be on your way in under 10 mins. Yes business models will change but ATD will likely adapt as the move to EV will likely take awhile to catch on.

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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Peculiar_Investor »

FinEcon wrote: 18 Mar 2017 11:03 My earlier post was intended to share a bit of my overall valuation framework, particularly with respect to a specific longer term downside scenario which is itself a small portion of the overall thesis in this case.
And it was very much appreciated by this reader.

There is a lot of good points being made about this company in the recent discussion, giving plenty of food for thought for those holding this stock or possibly considering where to make an entry. Thanks to all.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by ig17 »

I scanned Business Risks section in the annual report to see what they say about the threat of EVs. They only mention them in passing, fairly low on the laundry list of various risks:
Long-term changes in customer behaviour.

In the road transportation fuel and convenience business sector, customer traffic is generally driven by consumer preferences and spending trends, growth of road traffic and trends in travel and tourism. A decline in the number of potential customers using our fuel stations and convenience stores due to changes in consumer preferences, changes in discretionary consumer spending or modes of transportation could adversely impact our business, financial condition and results of operations. Additionally, negative publicity or perception surrounding fuel suppliers could adversely affect their reputations and brand image which may negatively affect our fuel sales and gross profits. Similarly advanced technology and increased use of “green” automobiles (i.e. those automobiles that do not use petroleum-based fuel or that run on hybrid fuel sources) could drive down demand for fuel.
They spent a lot more ink discussing tobacco sales. FWIW, they placed tobacco section close to the top on the list of risks.
Tobacco products.

Tobacco products represent our largest product category of merchandise and service revenues. For fiscal 2016, revenues of tobacco products were approximately 38.0% of total merchandise and service revenues. Significant increases in wholesale cigarette costs, a tax increase on tobacco products, as well as current and future legislation and national and local campaigns to discourage smoking in the United States, Canada and Europe, may have an adverse impact on the demand for tobacco products, and may therefore adversely affect our revenues and profits in light of the competitive landscape and consumer sensitivity to the price of such products.

In addition, we sell brands of cigarettes that are manufactured to be sold by Couche-Tard on an exclusive basis and we could be sued for health problems caused by the use of tobacco products. In fact, various health-related legal actions, proceedings and claims arising out of the sale, distribution, manufacture, development, advertising and marketing of cigarettes have been brought against vendors of tobacco products. Any unfavorable verdict against us in a health-related suit could adversely affect our business, financial condition and results of operations. In conformity with accounting standards, we have not established any reserves for the payment of expenses or adverse results related to any potential health-related litigation.
Smoking rates are declining in the developed countries. Smoking rates among young adults are lower than national averages. Therefore, the decline in national smoking rates is almost certain to continue until it levels out at 10% - 15% (current smoking rate among young adults). That's another headwind for the company.

*** I have a small position in ATD and I'm debating whether to hold or sell.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by DenisD »

There's been some discussion upthread about the impact of electric vehicles on ATD.B. But I don't think anyone's mentioned car sharing. Eventually, when we get self driving cars, more people will share cars. Most likely, we won't have to bother with gassing them up or charging them. The cars will do it themselves.

For now, we have services like Car2Go. Normally, when you use Car2Go, you don't stop at gas stations. In fact, if you have to add gas, you don't get reimbursed in cash, but in drivetime minutes. From the Car2Go FAQ:
Should you need to refuel a vehicle to complete your desired trip, feel free to do so! Then send us an email with a picture of the receipt, the license plate number of the vehicle you drove, and time of your trip. We’ll confirm the refuel and reimburse you with drive time minutes to use towards a future car2go trip.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by AltaRed »

Denis, the vehicles still need to be fueled up and will likely spend almost as much time in motion as the aggregate of personal cars it replaces. The main benefit of car sharing is to avoid all that 'idle' time and inefficiency of fixed costs of owning an vehicle outright.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Dudsy »

FinEcon wrote: 18 Mar 2017 11:03 If highest and best use didn't make sense to you, just think of it in qualitative terms
Interestingly, one of the big-five banks noted last week that ATD has committed to taking a hard look at its global real estate portfolio to see where there might be value with a view to highest and best use. With the Esso acquisition and the pending CST transaction, ATD will own real estate in a number of locations that arguably could be of much higher value if redeveloped.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by FinEcon »

ig17 wrote: Smoking rates are declining in the developed countries. Smoking rates among young adults are lower than national averages. Therefore, the decline in national smoking rates is almost certain to continue until it levels out at 10% - 15% (current smoking rate among young adults). That's another headwind for the company.

*** I have a small position in ATD and I'm debating whether to hold or sell.
You raise a fair point however, notice the talk around tobacco risk is all legal and not demand centric. Same risk as horizon as EV's IMO, far out on the timeline and ATD is likely to continue to expand into areas that have higher tobacco usage.

A while back, I looked into sale of lottery tickets in North America and the UK. What surprised me was that they are rising over time but then I figured this makes sense because old people love lottery tickets and other forms of 'penny stock' gambling. What I did learn, and the info was nowhere near as good, is that lottery revenues amongst young people are quite low. Combined with the inevitability (my opinion, not a fact) that lotto's will be sold/managed/payout via an app at some future time and this is the biggest non legal long term risk in ATD's product mix that I could come up with. Let's kind of think about the convenience product mix:
1) Liquor: good and may even grow in some areas as LB's loosen up draconian liquor sale rules in Canada
2) Tobacco: good for a quite some time but will no doubt stabilize at a much lower level in the distant future
3) Lotto: could get ugly but if boomers stick to tickets for 10-15 years we're fine
4) Coffee and hot food: fine and they're doubling down on a good bet by partnering up with fast food operators
5) Car wash: better over time, car wash industry trends positive

If anyone wants to see the geographical and product revenue split check out pg 34 of the latest presentation which shows a pro forma post CST and Esso deals.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by ig17 »

FinEcon wrote: 19 Mar 2017 20:24 You raise a fair point however, notice the talk around tobacco risk is all legal and not demand centric.
Not really. The first paragraph in the tobacco section is all about demand. Quote:

"Significant increases in wholesale cigarette costs, a tax increase on tobacco products, as well as current and future legislation and national and local campaigns to discourage smoking in the United States, Canada and Europe, may have an adverse impact on the demand for tobacco products, and may therefore adversely affect our revenues and profits in light of the competitive landscape and consumer sensitivity to the price of such products."
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by AltaRed »

Headwinds may be beginning for this company given the UK has now decided to ban the selling of gasoline and diesel fuelled cars by 2040.... following similar moves by Norway and France. They better figure out fast how to re-invent all those sites they have been buying up. The wise ones may be those energy companies that are shedding what might become artifacts.

https://www.nytimes.com/aponline/2017/0 ... ml?mcubz=1
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by kcowan »

Speaking personally, we have no charging at home or work so will be looking for fast charge alternatives in the next 22 years.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by Chuck »

I always chuckle at these 2 decade in the future plans.

It should read - Britain plans to ban sales of gas and diesel in 2040, unless during an election in the late 2030's this plan proves highly unpopular. In which case the plan can be scrapped.
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Re: Alimentation Couche-Tard (Symbol-ATD.B)

Post by adrian2 »

Chuck wrote: 27 Jul 2017 14:06 It should read - Britain plans to ban sales of gas and diesel in 2040, unless during an election in the late 2030's this plan proves highly unpopular. In which case the plan can be scrapped.
I would actively work to defeat such a monument of stupidity, and vote for any party that promises to scrap such a plan.

Eco-terrorists, that's a bridge too far! :twisted:
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