Investors would enjoy returns benefiting from inflation and keeping their finances ahead of inflation waves.
Benefiting from investments in grocery chain shares is no longer feasible. The low hanging cherries have been picked. Heaven knows what storm — politics or weather — will take a toll on the upper fruit.
Two Canadian retailers offer short term and long term prospects to take advantage of inflation and beat those numbers.
Dollarama started in 1992 and grew to 585 stores by 2009 when the public was first offered shares.
With 1,420 stores in Canada the company has a growth model in Latin America where 50.1 per cent acquisition of Dollarcity was made in 2013.
That operation has 352 stores in El Salvador, Guatemala, Columbia and recently Peru. Plans will grow them to 600 units by 2029.
Inflation has nearly turned the Canadian stores into five dollar stores with corresponding effect on profits.
Shares, selling at $40.69, are priced at a reasonable 16 times earnings. Last year’s profits of $504 million were up 20 per cent. Debt is pretty hefty at $1.89 billion.
Major risks stem from sudden changes in costs, failure to grow Dollarcity, politics in Latin America and deep recession.
Forty-year-old Alimentation Couche-Tarde has expanded from one convenience store to 16,500 in 28 countries with the March $4.5 billion dollar acquisition of Total Petroleum’s 2,200 units in Germany and the Benelux countries.
The Circle K brand is the number one convenience store in Canada, number four in the United States, with outlets in Ireland, Norway, Sweden, the Baltic countries and Southeast Asia.
Management is cautious and refuses to overpay for acquisitions, losing the opportunity a few years ago to entrench itself in Australia over price demands.
The founder owns 12.6 per cent of the shares. Couche-Tarde has bought back 10 per cent of the shares in recent years, adding value.
Couche-Tarde, which translates into ‘‘late” night from its Quebec origin, risks a sudden and prolonged drop in oil prices that would leave operators with high-priced gasoline to sell at a loss, recession and possible change of political winds.
The company had to write off 17 stores in Russia.
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Ron Walter can be reached at firstname.lastname@example.org
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.