These four Canadian companies with a global presence and double digit upside are plucked from a list of 30 Top Global Ideas for 2021 from the RBC Capital Markets equity research team.
They are domiciled in Canadian investors’ backyards yet are immersed and create growth opportunities in many parts of the world.
One of them, which could gain nearly 30 per cent in the next year, does 85 per cent of its business outside of its home country.
Find out what the growth catalysts are for these four names.
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Alimentation Couche-Tard (TSX:ADT.B). Rating: Outperform. Implied 12-Month Return: 27.6%
Investment summary:
Solid performance since the pandemic was declared underscores defensive nature of the convenience store (c-store) industry.
Investment thesis predicated on:
Multiple routes to future growth, with the five-year plan calling for double-digit EBITDA growth driven equally by organic growth/M&A, versus 30%/70% historically.
Positive underlying drivers remain:
i) Incremental synergies/reverse synergies from prior acquisitions, notably around rollout of Food at Scale beginning last year.
ii) Renewed top-line momentum from a more focused, data-driven approach to merchandising/promotional strategies.
iii) Sharing of best practices among geographies to drive sales and optimize margin/productivity, an element that has proven extremely useful since the pandemic hit Europe earlier than North America.
iv) Focus on surfacing operating expenditure/scale benefits.
v) Increased activity on store openings, targeting 200 annually up from 100 previously.
And, of course, opportunistic acquisitions, with current environment likely to surface attractive opportunities.
Other positive factors:
- Solid underlying operating performance aided by global Circle K rebranding, with Food at Scale and other fresh food & coffee initiatives driving traffic, basket growth.
- Industry performance in N.A. since the declaration of the pandemic reinforces defensive sector attributes.
- High gas margins/low fuel prices should enable ATD to offset gallon weakness related to current dislocation.
- Attractive geographic diversification with 85% of gross sales outside Canada.
- Small, strategic acquisition in Asia is not yet meaningful to financial forecasts but establishes a platform for accelerating growth from new geography.
- Real-world electric vehicle (EV) research and development lab in Norway: Sales of electric vehicles are likely to accelerate, and ATD is the only North American c-store player with a strong footprint in Norway, the global leader in EV adoption.
ATD already operates >1,000 charging stations on their sites in addition to 2,700 chargers in homes and offices, and is gaining valuable insight into consumer behaviour/revenue opportunities associated with top-up charging.
Strong balance sheet and free cash flow (FCF) profile with forecasted FCF in the range of $2 billion to fund dividend growth, debt repayment, and acquisitions.
Brookfield Asset Management (TSX:BAM.A;NYSE: BAM). Rating: Outperform. Implied 12-Month Return: 24.7%
We think the combination of:
(1) BAM’s strong long -term investment track record.
(2) Significant liquidity available ($76 billion) to fund acquisitions and investments at potentially attractive prices in the current market environment and drive future net asset value (NAV) growth.
(3) A differentiated and diversified product shelf with demonstrated ability to fundraise and drive scale benefits could result in double-digit NAV growth over time. Coupled with the shares trading at a 9% discount to NAV, we believe the current share price is an attractive entry point for a stock we view as a core holding.
Potential catalysts:
(1) Material value-surfacing monetizations or transactions.
2) Strong fundraising activity positively impacting future Fee Related Earnings and carried interest growth.
(3) A significant narrowing of Brookfield Property Partners (TSX:BPY.UN) discount to NAV. (BAM recently bid to take BPY private)
We value BAM using an NAV methodology, which we think is appropriate given the diverse nature of BAM’s assets.
Canadian Natural Resources (TSX:CNQ:NYSE:CNQ). Rating: Outperform. Implied 12-Month Return: 26.5%
- Canadian Natural Resources’ management committee structure and shareholder alignment are unique factors that distinguish the company globally.
- CNQ’s long -life, low-decline portfolio — anchored by moderate sustaining capital of about $3 billion — affords the company with superior free cash flow generative power.
- Management Committee Structure. CNQ has no CEO. Instead, the company is stewarded by a management committee comprised of 18 people.
This group meets weekly, and oversees all matters ranging from marketing, finance, environmental, social, governance (ESG), operations and technology amongst others.
Murray Edwards, Executive Chairman, Tim McKay, President, and Mark Stainthorpe, CFO are all key members of the committee.
ESG — Lots of Progress.
CNQ has set a long-term aspirational target of net zero oil sands emissions over time.
During the interim, the company is targeting a 25% reduction in oil sands green house gases (GHG) emissions intensity by 2025.
Thus far, strong progress has been made at Horizon where CNQ has reduced its emissions intensity by 37% since 2012.
Thomson Reuters (TSX:TRI;NYSE:TRI). Rating: Outperform. Implied 12-Month Return: 9.3%
Thomson Reuters over the next five years can sustain an NAV compound annual growth rate (CAGR) of +8 – 9%, a notable increase over an estimated normalized NAV CAGR of +5 – 6% through the 2000s and 2010s.
We see potential for further multiple expansion as Thomson Reuters continues an evolution to software provider.
Importantly, we believe all of the key performance indicators underpinning NAV growth and multiple expansion are sitting at structural low points when looking out over the next decade.
Potential catalysts for the stock include:
- Greater-than-expected resilience in end-market demand.
- More robust EBITDA margin expansion driven by operating leverage and/or additional cost-efficiencies.
- Higher revenue growth and/or efficiency rating.
- Greater appreciation for a content-driven software model.
- Sustained outperformance relative to traditional information publishing peers.
- Accretive tuck-in acquisitions and/or share repurchases.
Disclosure: RBC Capital Markets has conducted investment banking business with each of the companies mentioned within the last 12 months.
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