No Longer ” Crappy Tire” )
CTC.A : TSX : C$96.97
BUY
Target: C$109.00
COMPANY DESCRIPTION:
Canadian Tire is Canada’s most shopped general merchandise retailer, operating stores under the Canadian Tire, Mark’s, and PartSource banners. Through Canadian Tire Financial Services the company also manages a portfolio of credit card receivables.
All amounts in C$ unless otherwise noted.
Consumer & Retail — Merchandising
SOLID QUARTER, DIVIDEND RAISE WELL RECEIVED
Investment recommendation
We are reiterating our BUY rating and C$109.00 target price following Canadian Tire’s Q3/13 earnings results.
Investment highlights
Canadian Tire reported Q3/13 earnings results on Thursday morning, before the market open. Revenue increased 4.5% YoY to $2,956 million. EPS of $1.79 was in-line with our estimate, and above consensus of $1.76 and last year at $1.61. The company also announced a 25% increase to its quarterly dividend to $1.75 per share.
Retail appeared to be firing on all cylinders during the quarter, with healthy same-store sales growth at all banners. CTR, Forzani, and Mark’s delivered 2.0%, 6.3% and 4.3% increases in same-store sales, respectively. At CTFS, a 118 bps YoY decline in write-off rates to 5.74% allowed the company’s return on receivables to increase to 7.21% from 6.68% last year. EBT at CTFS increased to $80 million, up 8.5% YoY.
Looking forward, we expect continued strength at the company’s Retail division as we head into the holiday season, with management noting that inventories remain in a healthy position in advance of Q4/13. Furthermore, we believe investors will focus on the potential announcement of a credit card partnership over the next 12 months which we believe should unlock meaningful cash for Canadian Tire.
Valuation
Our 12-month C$109.00 target price reflects our sum-of-the-parts valuation, whereby we value the company’s real estate, Retail division, and Financial Service division separately.
