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Couche-Tard (Baa1, BBB; S), cheapens post issuance; earnings ahead

CONSUMER STAPLES

Among those underperforming on this week's spread sell-off has been 'defensive' name ATDBCN; follows strong performance in primary earlier this month.

Couche-Tard {ATD CN Equity} (ATDBCN; Baa1, BBB+ S), the US & Europe area convenience store (Fuel -Circle K/Ingo & general retail) operator has been struggling in recent sessions - it reports Q3 results on March 20th after the Canadian close, consensus (*9) looking for~10% yoy growth in EBITDA & similar tailwind to FCF.

Its Euro 7/12yr deal (€1.35b) was well covered earlier this month (books 7.3*/7.8*) with similar results in its 2-part 10/30yr $ deal ($1.5b) that went well through its secondary curve (covered 5.1*/7.8*). The funding was for its purchase of gas stations in Europe from TotalEnergies - a ~€3.1b deal (it generated ~$2.5b of FCF last yr).

Convivence store operators are defensive but ATDBCN is exposed to vol. in retail fuel margins & demand easing from EV penetration.

It runs a healthy BS ($1.4b in cash, leverage 1.5*, FCF ~$2.5b/yr) enabling it to target M&A activities with little short-term impact - in line with these metrics it was upgraded to Baa1/BBB+ early last yr by both S&P/Moody's & at current leverage could be on-track for further upgrades (though contingent on any impact from M&A activity).

Still a significant discount in the € curve for the Canadian company despite trading ~ in line with equal rated peers in $ space.

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