Canadian Tire Corporation (TSX:CTC.A) University of Waterloo All figures in C$ unless otherwise noted Recommendation – Buy Market Data TSX: CTC.A Market Capitalization $10.0bn P / E (Non-voting; Diluted) 15.4x $200 1 5 M $132.63 14.8% Total Return $175 Daily Trading Volume Daily Trading (Apr. 8) Volume Daily Trading 4 M $150 $125 3 M $100 $75 2 M $150.00 SharePrice SharePrice $50 (12-month Target) 1 M $25 $0 0 M Apr-2011 Apr-2012 Apr-2013 Apr-2014 Apr-2015 Apr-2016 Apr-2017 1 Total return is calculated based on the share price appreciation (13.1%) and forecasted annual dividend (1.7%). Sources: Capital IQ Business Overview Canadian Tire Corporation University of Waterloo Business Overview: Company History $175 $150 $125 $100 $75 $50 Share Price $25 $0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Company filings, Capital IQ Business Overview: Company History 1 2 3 $175 $15bn $150 Revenue $125 $10bn $100 $75 3 $50 2 $5bn Share Price $25 1 $0 $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Company filings, Capital IQ Business Overview: Company History $175 $15bn $150 Revenue $125 $10bn $100 $75 $50 $5bn Share Price $25 $0 $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Company filings, Capital IQ Business Overview: Company History $175 $15bn $150 Revenue $125 $10bn $100 $75 $50 $5bn Share Price $25 $0 $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Company filings, Capital IQ Business Overview: Company History $175 $15bn $150 Revenue $125 $10bn $100 $75 $50 $5bn Share Price $25 $0 $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Company filings, Capital IQ Business Overview: Operating Segments Revenue ($ mm) Earnings Before Taxes ($ mm) CTFS CT REIT CT REIT $1,101 $378 $235 Retail CTFS Retail $11,075 $374 $605 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Note: Breakdown excludes corporate-level eliminations and adjustments. Sources: Company filings Business Overview: Operating Segments Revenue ($ mm) Earnings Before Taxes ($ mm) CTFS CT REIT CT REIT $1,101 $378 $235 CTR $6,352 Retail CTFS Retail $11,075 $374 $605 Foundation Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Note: Breakdown excludes corporate-level eliminations and adjustments. Sources: Company filings Business Overview: Operating Segments Revenue ($ mm) Earnings Before Taxes ($ mm) CTFS CT REIT CT REIT $1,101 $378 $235 CTR $6,352 Retail CTFS Retail FGL $11,075 $374 $605 $2,029 Foundation Growth Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Note: Breakdown excludes corporate-level eliminations and adjustments. Sources: Company filings Business Overview: Operating Segments Revenue ($ mm) Earnings Before Taxes ($ mm) CTFS CT REIT CT REIT $1,101 $378 $235 Gas+ $1,735 CTR $6,352 Mark’s Retail CTFS Retail $1,093 FGL $11,075 $374 $605 $2,029 Foundation Growth Profitability Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Note: Breakdown excludes corporate-level eliminations and adjustments. Sources: Company filings Foundation: Canadian Tire Retail Canadian Tire Corporation University of Waterloo Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Product Categories Automotive Fixing Living Playing Seasonal Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020) Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sales per Square Feet: CTC versus Canadian Retail Subsector Averages $450 $350 $250 $150 $50 2010 2011 2012 CTR General Merch. Auto Parts & Tire Bldg Mat., Garden Equipm't & Supplies Furniture, Home Furn. Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020, Table 080-0023) Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Associate Dealer Structure Overview Store Ownership Model Aligns of Dealers to CTR 100% 1 Economic Interests Drive Sales Volume Walmart 100% Capitalizes on Dealer’s Understanding of Local Home Depot 100% 2 Trends Lowe's 100% Differentiated Position in Competitive 3 Landscape RONA 45% 55% Leon's 66% 34% Company-owned Stores Other Stores Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020), Company filings Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Price-weighted Price Basket Analysis #1 Ranked Retailer in $2,666 $2,536 Affordability $2,317 $2,298 • Leading retailer $2,117 $2,229 (Price-weighted) in terms of #2 Ranked Brick-and-Mortaraffordability Retailer in Affordability (Equal-weighted) Price Match Guarantee CTR WMT RONA LOW HD AMZN Brick-and-Mortar Retail Online Retail Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020), Company websites Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Equal-weighted Price Basket Analysis #1 Ranked Retailer in 1.1062 1.1279 Affordability 0.9738 0.9741 0.8883 0.9297 (Price-weighted) #2 Ranked Brick-and-Mortar Retailer in Affordability (Equal-weighted) Price Match Guarantee CTR WMT RONA LOW HD AMZN Brick-and-Mortar Retail Online Retail Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020), Company websites Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 15-min % # Stores CTR 89% 498 #1 Ranked Retailer in Lowe’s & RONA 88% 526 Affordability RONA 84% 484 (Price-weighted) Walmart 75% 395 Home Depot 56% 180 #2 Ranked Lowe’s 15% 42 Brick-and-Mortar Retailer in Affordability (Equal-weighted) Price Match Guarantee CTR is the leading general merchandise retailer in convenience and affordability Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020), Web scraping of company websites Foundation: Canadian Tire Retail Competitive Positioning General Merchandise Subsector Sales $80 Associate Dealer Structure $60 Pricing & Price Match Guarantee $40 Physical Footprint $ in $ billions $20 $0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Valuation Terminal Year Cost of Equity Unlevered Terminal Growth CAPM (Comparable $40.73 / Methodology DCF 2.0% Companies) 27% Financial Analysis ’10A – ‘15A ‘15A – ’20F Revenue CAGR 2.5% 3.0% Gross Margin (Avg) n.a. 31.5% EBITDA Margin (Avg) n.a. 7.5% Net Stores Opened 13 10 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020; Financial Performance Data), Company filings Growth: FGL Sports Canadian Tire Corporation University of Waterloo Growth: FGL Sports Competitive Positioning Sporting Goods Subsector Sales $6.0 Selection & Pricing General and Specialty Stores $4.0 Fragmented Industry $2.0 $ in billions $0.0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020) Growth: FGL Sports Competitive Positioning Sporting Goods Subsector Sales $6.0 Selection & Pricing General and Specialty Stores $4.0 Fragmented Industry $2.0 $ in billions $0.0 Valuation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Big-Box Concept Specialty Stores Business Foundation Growth Profitability Valuation Investment Conclusion Overview Risks Sources: Statistics Canada (CANSIM Table 080-0020), Company websites Growth: