Buy this blue chip growth stock for capital gains

Couche-Tard has agreed to acquire Ireland’s largest convenience store and gas station operator. It should profit as its sites grow worldwide. Due to the high share price, the growing dividends yield little. But this Canadian blue chip stock remains a buy, mostly for price gains.

Alimentation Couche-Tard (TSX─ATD.B), one of our Key stocks, continues to expand. This growth stock remains a buy, mostly for long-term share price gains. The company is also what’s known as a ‘dividend aristocrat’. That’s because it raises its dividend every year. In fact, Couche-Tard has just raised its dividend by 22.7 per cent, to 27 cents a share. The thing is, its share price has risen so much that it now yields only 0.45 per cent.

On December 2, 2015, Couche-Tard agreed to acquire Ireland’s largest convenience store and gas station chain, Topaz. Specifically, the Canadian company plans to buy Topaz Energy Group, Resource Property Investment Fund plc and Esso Ireland Ltd.

Topaz operates 464 gas stations across Ireland. Dealers own 302 stations while Topaz owns 162. The acquisitions include a commercial fuels business, with over 30 depots and two owned terminals.

President and chief executive officer Brian Hannasch said, “In 2012 we declared that Statoil Fuel & Retail would be our platform for growth in Europe. This agreement to acquire Topaz’s network and assets, our second announcement in Europe this year following the Danish Shell deal, would allow us to add yet another high quality network to our operations. . . .We have been looking at this market for several years.” Ireland received a European Union bailout several years ago. But it now has one of Europe’s fastest-growing economies.

Canadian growth stock should profit in Ireland

Couche-Tard will finance the acquisitions with its own cash as well as borrowed money. It expects the transaction to close in fiscal 2016 (which ends near the end of April). This should add to its revenues and earnings in fiscal 2017, which begins in a little over three months from now.

In the 24 weeks to October 11, 2015, Couche-Tard earned US$667 million, or US$1.17 a share, excluding one-time items. This represented earnings growth of 13 per cent from US$589 million, or just under US$1.04 a share, a year earlier.

Couche-Tard has grown enormously over the years. It’s the top convenience store operator in Canada with outlets across all 10 provinces. The company is the top independent convenience store operator in the U.S. “in terms of number of company-operated stores”. It owns stores in 41 U.S. states. On October 11, its North American network (excluding Mexico) consisted of 8,006 convenience stores.

In Europe, Couche-Tard operates 2,217 stores in the Scandinavian countries of Denmark, Norway and Sweden, the Baltic countries of Estonia, Latvia and Lithuania as well as in Poland and Russia. It also “operates key fuel terminals and fuel depots in six European countries”. We expect its European network to grow further in Denmark and Ireland next year. There’s much room for further growth.

The Circle K banner is popular worldwide

Independent operators of about 4,700 stores do so under Couche-Tard’s Circle K banner. These stores are in China, Costa Rica, Egypt, Guam, Honduras, Hong Kong, Indonesia, Japan, Macau, Malaysia, Mexico, the Philippines, the United Arab Emirates and Vietnam.

Add all this up and Couche-Tard’s global network includes about 14,923 sites. This blue chip Canadian growth stock continues to build and acquire additional outlets in all of its markets, particularly in North America and Europe. Some companies would find it hard to keep track of so many far-flung operations. But Couche-Tard operates in a decentralized way. That is, it lets local managers who know the market well to do what makes sense.

 

The Investment Reporter, MPL Communications Inc.
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