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There are compelling reasons to take a slice of the equity in high-quality petrol forecourt retailer Applegreen (APGN:AIM). The Dublin-headquartered outfit not only offers a play on food-to-go and convenience trends, but also access to a robust cash-generative business model that should support geographic expansion and a steady stream of progressive dividends.

Ripe for growth

Guided by CEO Bob Etchingham, Applegreen debuted on AIM last summer (19 Jun ‘15), raising £66.9 million. The company is the second largest convenience forecourt retailer in Ireland with a rapidly growing business in Great Britain too. Differentiated via a strong snacking and convenience food offering, Applegreen still has growth to go for in the Republic of Ireland and has barely scratched the surface of its expansion potential in the UK.

Plays - Applegreen

House broker Shore Capital believes the forecourt fuel operator is ‘a potent discount/deep value fuel operator, which bolts on a compelling convenience retail and outstanding food-to-go proposition onto its prime footfall driver.’ Applegreen’s offering of keen fuel prices lures motorists to its sites, where it can then sell customers higher margin, premium food and drink. A key competitive advantage is the plethora of strategic partnerships Applegreen already has with major brands - these include Burger King, Subway, Whitbread’s (WTB) Costa Coffee as well as Greggs (GRG), though Applegreen also has its own food offer through the in-house aCafe and Bakewell brands.

Fuel is a low margin business, susceptible to oil price volatility, yet the resilience of the Applegreen model is proven, the company having grown strongly throughout the Irish recession. Applegreen has numerous tailwinds including strong underlying economic growth across Ireland and the UK and low oil prices encouraging people to drive more often, and therefore buy fuel more regularly.


Growth: HIGH

The forecourt fuel operator is delivering double-digit growth rates and has expansion possibilities in Ireland, the UK and the US.

Risk: MEDIUM

Applegreen’s model is resilient, though it faces oil price volatility and competition.

Quality: HIGH

A high-quality food-to-go offering and ties with international brands at bigger motorway service stations are key competitive strengths.


Structural change in the fragmented petrol station market is creating opportunities for Applegreen, with oil majors exiting front-line fuel retailing and the out-of-town supermarket model also in decline. Etchingham’s key growth pillars include the upgrading and rebranding of the existing petrol filling station network, the expansion of the petrol filling estate through new openings, as well as opportunistic acquisitions and exploration of the opportunity in the US food-on-the-move market.

Expansion strategy

Applegreen is adopting a low-risk approach to expansion in North America, a medium-to-long term opportunity that will drive supplementary growth once the Irish business matures and the UK operation becomes better established. Encouragingly, Applegreen’s early-stage US business is already breaking even and planned expansion throughout 2016 only enhances the stock’s growth attractions.

Maiden interim results (14 Sep) showed positive progress across key metrics, with sales up 16% to €517 million (£380.7 million) and adjusted pre-tax profit 43% ahead at €5.2 million (£3.8 million), driven by strong contributions from new sites and from food revenues following site upgrades. Shares believes the continued delivery of double-digit growth rates should trigger the earnings upgrades required to sustain Applegreen’s upwards share price momentum.

For calendar 2015, Shore Capital forecasts pre-tax profit of €17 million (2014: €14.8 million) and a balance sheet swing from €47.1 million net debt to €6.1 million net cash. However, 2016 estimates appear conservatively pitched, pointing to €20.7 million of pre-tax profit for earnings of 20.6c or 15.2p and a well-covered maiden dividend of 6.2c (4.6p), metrics which should progress to €24.7 million, 24.6 (18.1p) and 7.2c (5.3p) respectively by 2017.


Apple green (APGN) 390.5p

Stop loss: 312.4p

Market value: £306.81 million

Prospective PE Dec 2016: 25.7

Prospective PE Dec 2017: 21.6

Prospective dividend yield: 1.2%

Bid/offer spread: 3.77%

Analyst price target: €5.50
(Goodbody, 16 Sep 2015)

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