mercredi 27 septembre 2017

Metro (MRU.TO) buys Jean Coutu (PJC-A.TO). NOT SO GOOD MY DROOGIES.

There's some great businesses in Quebec. Couche-Tard is among them and it's almost at the top. Metro is among them, probably in the top 10. And Jean Coutu has good ROE and is well managed but is not very agressive. It's more passive than agressive. So, I don't think that Jean Coutu is among the top list.

Over the last years, there's been some speculation about Metro buying Jean Coutu. It made sense to a lot of people, me included. After all, Jean Coutu seemed to have some problems to grow.

Just take a look at Jean Coutu's EPS since 2011 and you'll understand quickly:

2010: 0,48$
2011: 0,77$
2012: 1,03$
2013: 2,57$
2014: 2,12$
2015: 1,16$
2016: 1,14$

Do you see something exciting there?

Not me.

I surely wouldn't pay 23 times actual earnings or 22 times next year's earnings for such a business. But that's the price Metro is willing to pay to get Jean Coutu.

It's expensive. Metro is not paying for growth. Metro is paying for consolidation (because Metro owns Brunet, which is a pharmacy chain). 

And Metro will probably sell a lot or all of their Couche-Tard stocks to finance the acquisition.  How could they sell something agressive like Couche-Tard for something passive like Jean Coutu?

I'd never do that. More so given the fact that Couche-Tard is actually cheaper than Jean Coutu.  But please, if your intelligence is superior than mine, explain to me what I'm missing here. I just see nonsense.

It's hard to see exactly what's is gonna be. But I'd rather stay away for now and watch how things turn. There's many stocks we can understand easier than that possible merger at an high price.

13 commentaires:

  1. I'm a pharmacist in Quebec and I often work in a Jean-Coutu pharmacy as a replacing pharmacist. What I can tell you is that, from the inside, I find Jean-Coutu to be always one step ahead of the competition in Quebec. They are more efficient, more technology-driven and do not depend on Mckesson as a supplier as much as the competition. In an investing point of view, though, I wouldn't pay 23 times the earnings either...


    1. Je crois aussi que c'est une excellente compagnie. S'ils étaient plus agressifs, ils seraient dans le top québécois.

    2. Très d'accord.

      Un article intéressant à lire par notre moralisateur préféré Philippe Leblanc sur le site en date d'aujourd'hui sur la transaction metro/jean-coutu...

    3. J'ai lu l'article ce matin. On peut voir du positif dans la transaction mais on ne peut pas voir QUE du positif.

  2. What makes sense for Eric La Fleche (CEO of Metro) may not make sense for the shareholders. Eric can get more money now that he will have so many more employees and a bigger company to run. On the other hand, Jean Coutu's family was very happy to accept a mere 6% above the current stock price. I suspect Metro shareholders are getting screwed. I like companies where the upper management owns a big percentage of the company. It's a funny thing but my best performing stock by far this year is 75% owned by the CEO. He keeps the company debt free and is not looking to grow just to be bigger. When CEOs who own huge amounts of the company make buyout offers they are rather stingy (they often pay under 10 times earnings).

  3. If Metro sells ATD to fund the acquisition which is very likely, I will be all over ATD. I am hoping for a huge drop on ATD so that I can build my position.

    Angelo, can you share the company that is owned by 75% by the CEO?

    1. You shouldn't wait too much. ATD is already not that expensive.

    2. I agree with you. It is already cheap but I think the markets would punish them more. I have already a half position so I am not in hurry as if it drops further, I can build a full position at cheaper price. If it recovers then I can just be happy with holding it. Great company.

  4. FIZZ / National Beverage is 75% owned by the CEO. (52 week change of 183%). I bought shares around $50 in January, added aggressively in February, sold half my position at $80 shortly after that, and just added a tiny bit more at $124 today. Forward p/e is now 37. People will think I'm crazy. LOL. I like cash rich, debt free growth companies with a Return on Equity of around 50%.

    1. Thanks Angelo. I will research about the company. What a spectacular return! Financial fundamentals looked amazing but as always the markets drove the share price really high... sigh... I will keep it on my watch list for now.

  5. ATD.b remains one of our top positions. I'm actually considering trimming DOL to buy ATD such that they are both equal weights again. Was away for a few weeks but back now. I will say that our high ROE ponies appear to be catching a bid here. We had a good month in September after getting pummeled in June/July. Good luck to us.

  6. Oui!... did the BNN thing mid September and then to Paris and Crete for 10 year wedding anniv. There's rumour of a Quebec/Montreal trip for me in the new year... now that we're owned by Industrial Alliance. You have a few more months to dig a hole and hide.