Bottom Feeding - ATD.TSX, CCT.AIM, and QIPT.TSX

This week we're taking a look at a large Canadian convenience store operator, a toy developer/distributor in the UK, and a respiratory care provider in the US.

Alimentation Couche-Tard Inc. (ATD.TSX)

ATD operates more than 16,800 convenience stores and petrol stations across 31 countries and territories, including the United States, Canada, and Europe.

In the year ended 28 Apr 2024, it generated total revenue of $69,263.5m (FY23: $71,856.7m), operating profit of $3,810.2m (FY23: $4,232.0m), and net profit of $2,729.7m (FY23: $3,090.9m).

Total equity at 28 Apr 2024 was $13,301.4m (FY23: $12,564.5m), almost entirely intangible, and it had net debt including lease liabilities of $13,162.7m (FY23: $8,639.4m).

ATD generated net cash flows from operations of $4,817.2m (FY23: $4,344.6m), and invested a net $6,603.9m into a mix of business acquisitions, PP&E, and other assets (FY23: $2,275.6m). Free cash flow was $2,395.2m (FY23: $2,101.9m), which it used to pay dividends of $453.0m (FY23: $377.7m) alongside share repurchases totalling $1,349.4m (FY23: $2,392.5m).

Market capitalisation: CAD 65,450m ($46,901m)

Valuation: Using the FY24 figures, the shares currently offer a 5.8% earnings yield, 5.1% free cash flow yield, 1.0% dividend yield, and 3.8% shareholder yield (dividends + share repurchases).

Reason: Earnings contraction and generally negative economic outlook.

Interest level: Moderate - The company has achieved impressive growth over the last decade or so, but is perhaps a little too expensive for me currently.

The Character Group (CCT.AIM)

CCT engages in the design, development and international distribution of toys, games and giftware, often under licence from well known brands.

In the year ended 31 Aug 2024, it generated total revenue of £123,419k (FY23: £122,591k), gross profit of £32,751k (FY23: £32,786k), operating profit of £6,546k (FY23: £5,300k), and net profit of £4,952k (FY23: £3,499k).

Total equity at 31 Aug 2024 was £38,630k (FY23: £39,365k), almost entirely tangible, and it had net cash including lease liabilities of £12,284k (FY23: £8,860k).

CCT generated net cash flows from operations of £12,017k (FY23: £(2,974)k - largely due to movements in working capital), and invested a net £2,220k into a mix of intangible assets (primarily capitalised product development) and PP&E (FY23: £3,997k). Free cash flow was £9,228k (FY23: £(7,806)k), which it used to pay dividends of £3,623k (FY23: £3,486k) alongside share repurchases totalling £2,000k (FY23: nil).

Market capitalisation: £44,510k

Valuation: Using the FY24 figures, the shares currently offer a 11.1% earnings yield, 20.7% free cash flow yield, 8.1% dividend yield, 12.6% shareholder yield, and trade at 1.15x book value.

Reason: Uncertainty around tariffs, which given the products are manufactured in China, will directly impact the c.20% of sales that came from the U.S. in FY24.

Interest level: Moderate - The company is well capitalised, making it likely it will be able to weather these near-term headwinds. Dividend yield is pretty attractive and management is using the current share price weakness to be fairly aggressive with share repurchases, in alignment with relatively high insider ownership. The only thing that gives me pause is the nature of the business itself, which isn't the highest quality.

Quipt Home Medical Corp. (QIPT.TSX)

QIPT provides in-home equipment and disease management solutions for clinical respiratory care in the United States.

In the year ended 30 Sep 2024, it generated total revenue of $245,915k (FY23: $211,677k), operating profit of $1,115k (FY23: $2,853k), and a net loss of $(6,763)k (FY23: $(2,784)k).

Total equity at 30 Sep 2024 was $107,191k (FY23: $111,115k), entirely intangible, and it had net debt including lease liabilities of $83,628k (FY23: $80,754k).

QIPT generated net cash flows from operations of $35,381k (FY23: $36,980k), and invested $10,313k into purchases of property and equipment (FY23: $6,852k + $76,038k for a business acquisition). Free cash flow was $(5,787)k (FY23: $3,580k), and it didn't distribute any cash to shareholders. Note: the company leases a lot of equipment, which turned free cash flow negative.

Market capitalisation: CAD 84,720k ($60,880k)

Valuation: Using the FY24 figures, the shares currently offer a (11.1)% earnings yield, and (9.5)% free cash flow yield.

Reason: Revenue has started contracting, the company still remains unprofitable, and the shares are coming off COVID highs.

Interest level: Low - Free cash flow looked attractive in a screener, but proved illusory after accounting for the equipment leases. Not much to like here unless you think there's going to be an inflection in earnings/FCF in the near future.

Well that concludes this week's newsletter. If you own, or have studied any of the companies profiled, please share any additional insights you might have in the comments. See you next week for some more bottom feeding.