Andrew Peller Limited (TSX: ADW.A) is a wine-producing company and is involved in the production and sales of wine and spirit products across Canada. 

• Product innovation: As per the management, the group is focusing to expand its product offerings outside the traditional wine segment into other alcoholic beverages where it is able to leverage its detailed knowledge of growth opportunities. In order to improve its product offerings, ADW.A enhanced its packaging designs, which are more appealing and environmentally friendly. New product launches and key brands through all the Company’s distribution channels are likely to boost the company’s market share in the coming days.
  

• Increase in dividend payment: In 9MFY22, the company reported its dividend distribution of CAD 7.6 million, which is higher than CAD 6.8 million in pcp. This is backed by stable cash flow generation. Moreover, a higher dividend distribution is impressive, as most of the companies are lowering or suspending their distribution in order to retain liquidity. Notably, the stock of ADW.A is carrying a dividend yield of ~3.315%, which looks impressive considering the ongoing interest rate scenario.
  

• Positive Macros: Over the long-term, the higher-priced premium wine and spirits sales are likely to grow in Canada, which is likely to boost the company’s margins and cash flows in the coming days. Notably, the group also marked its presence across the spirits and craft beer categories through its strategic alliance with Wayne Gretzky and introduced ciders and seltzers through its own brand labels, which are expected to gain traction in the coming days.

Risks associated with the investment:

A shift in consumer preference due to the introduction of a new product, changes in discretionary spending etc. would take a toll on the overall sales volume and subsequently dampen the overall performance of the company.

   Q3FY22 Financial Highlights:

• A announced its quarterly results, wherein the company posted its revenue of CAD 103.4 million, slide from CAD 111.0 million in the previous corresponding period (pcp). The decline was primarily due to a slide in demand due to a change in purchasing pattern of the consumers.
• The group reported a gross profit of CAD 34.0 million, lower than CAD 38.8 million in pcp, primarily attributable to a lower income, partially supported by a lower cost of goods sold.
• The quarter was marked by a higher Interest expense and an increase in amortization expense, partially offset by lower selling & administrative expense. Hence, net profit stood lower at CAD 3.1 million, versus CAD 10.2 million in pcp.

 Valuation Methodology (Illustrative): EV to Sales based

  Analysis by Kalkine Grou

Stock Recommendation:

The management is pro-actively monitoring its cost structure in order to boost its margins for the coming quarters, which is a key positive, as it would improve the company’s operational metrics and would result into better outcome. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Waterloo Brewing Ltd, Waterloo Brewing Ltd and Diamond Estates Wines & Spirit Inc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 7.42 on March 18, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 18, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.