Dollarama Inc.

DOL : TSX : C$79.30
Target: C$90.00

Dollarama Inc. is a leading Canadian dollar store, carrying general merchandise, consumables and seasonal products in locations across Canada. Products are sold at fixed price point intervals between $1.00 and $2.00.
All amounts in C$ unless otherwise noted.


Investment recommendation
We are reiterating our BUY rating, reiterating our Focus List pick status and raising our target price to C$90.00 (from C$81.00) following strong Q2/F14 earnings results. We also note that we have rolled forward our valuation to reflect our F2015 earnings estimates.
Investment highlights
 Dollarama reported strong Q2/F14 earnings results this morning. Revenue increased 16% YoY to $511 million. EPS of $0.82 was slightly ahead of our $0.81 estimate and ahead of consensus of $0.78.
 Dollarama continues to report healthy same-store sales growth at 6.2%, consisting of a 4.6% increase in basket size and a 1.6% increase in traffic. Importantly, after rising due to cost reduction roll-outs in Q1/F14, SG&A as a percentage of revenue resumed its multi-year downtrend, declining 40 bps YoY to 17.9%.

We view SG&A reductions as more visible and sustainable than gross margin increases with regard to the favourable impact on margins.
Therefore, the results are incrementally positive in our view.  Since the end of Q1/F14, Dollarama has repurchased 3% of S/O at an average cost of $74.35. Completion of the NCIB would result in further repurchases of 2% of S/O.
Our 12-month C$90.00 target price represents 20.8x our F2015E EPS of $4.33. We continue to believe that Dollarama offers investors the most visible and robust growth profile in our Consumer Products universe.
The company’s healthy balance sheet, robust FCF generation, industry leading profitability metrics, and a strong new store growth pipeline justify a premium valuation, in our view, and we would continue to be buyers at current prices.


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