The 10 per cent rule is often applied when comparing things between Canada and the United States.

That’s to account for the fact the U.S. population is about 10 times the size of its northern neighbours’s.

We’re using a variation of that rule to pluck three of the four Canadian companies – Element Fleet being the other one – that have been chosen for RBC Capital Markets’ Top 30 Global Ideas for 2021, Q2 Update.

The stocks have 12-month upside of between 23 and 37%.

Here are a few excerpts from that report.


Alimentation Couche-Tard (TSX:ATD.B), Implied Return: 37%

Solid performance since the pandemic was declared underscores defensive nature of the convenience-store (c-store) industry.

Our Outperform rating on ATD is predicated on:

  1. 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.
  2. Surfacing incremental synergies from prior acquisitions including reverse synergies from Holiday, notably around rollout of Food at Scale;
  3. Renewed top-line momentum from a more focused, data-driven approach to merchandising/ promotional strategies;
  4. 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;
  5. Focus on surfacing opex/scale benefits;
  6. Increased activity on new store openings.

Opportunistic acquisitions.

  1. Solid underlying operating performance aided by global rebranding to Circle K, with Food at Scale and other fresh food and coffee initiatives generating traffic and basket growth.
  2. Industry performance in North America since the start of the pandemic reinforces defensive sector attributes. High gas margins enabling ATD to offset gallon weakness related to current dislocation.
  3. Attractive geographic diversification with >85% of revenue generated outside Canada.
  4. Real-world electric vehicle R&D lab in Norway:

Looking ahead, 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 sales.

ATD already operates >1,000 charging stations on its sites in addition to 2,700 chargers in homes and offices, and it is gaining valuable insight into consumer behaviour/revenue opportunities associated with top-up charging.

Strong balance sheet + free cash flow (FCF) profile with forecast FCF in the range of $2 billion to fund dividend growth, debt repayment, and acquisitions.

Brookfield Asset Management (TSX:BAM.A;NYSE:BAM), Implied Return: 25%

Why we rate Brookfield Asset Management shares as Outperform: We think the combination of:

1) BAM’s strong long-term investment track record;

2) Significant liquidity available ($77 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 fund-raise and drive scale benefits could result in double-digit NAV growth over time.

Coupled with the shares trading at a -16% discount to net asset value, 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) Active acquisition/investment activity to drive future NAV growth.

Canadian-Pacific (TSX:CP; NYSE:CP), Implied Return: 23%

Our positive view on CP centers on a best-in-class railroad on the cusp of a transformative acquisition that, if approved, should set the stage for significant growth and a material upward valuation re-rate.

Key points: Kansas City Southern (KCS) would significantly improve CP’s network.

  1. The core value of any railroad is the reach and breadth of its network, and the proposed transaction would provide CP an important north/south line stretching from Canada through the US and deep into Mexico.
  2. Origination/Destination pairings (OD pairs) would improve significantly, as CP has always been “origination rich” but lacked reach to larger end-markets.
  3. The deal would connect six of the seven largest metro regions in North America in a single line. As a result, the OD angle of the transaction has particular appeal.
  4. Diversification a big component of the value proposition in KCS deal. Particularly favourable is the improvement in diversification that comes on both a business line and a geographic basis.
  5. Notable is the level of Merchandise exposure that KCS brings to CP, as well as the increased US and new Mexican revenue streams. US$780 million in synergies.
  6. Of particular note is the revenue synergy opportunity ($600 million of the total) with expected share gains in Grain, Fertilizer, Intermodal, Auto, and Crude.

Regulatory risk – we view as low.

Given the absence of any network overlap and the meaningfully higher weight in the revenue component of the forecast synergies, we see limited concern from a competition standpoint and a compelling case for a pro-competition argument.

Competing bidder risk. We see the likelihood of a competing bidder as low. BNSF the most likely.

We consider CP’s management to be one of the top teams in North America and have strong confidence in its ability to execute on the integration of this deal and achieve (or exceed) the announced targets.

Moreover, CP’s Board and CEO Keith Creel have agreed to contract amendments that would see Mr. Creel lead the company out at least to 2026.

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