Corby Spirit and Wine Limited

Corby Spirit and Wine (TSX: CSW.A) is a leading manufacturer, importer, and marketer of spirits and wines. The company’s diversified portfolio of owned and third-party brands ensures stable cash flows and profitable growth.

Whether sin stocks are recession proof or not is debatable, but shares of Corby have been resilient to the 2020 stock market crash. For instance, Corby stock is up marginally on a year-to-date basis (as of March 31) as compared to more than 20% drop in the broader market.

Financial highlights: For the six months period ended December 31, Corby posted revenues of CAD 82.1 million, reflecting y-o-y growth of about 3%. Higher shipment volume and value supported the top line growth. The company’s owned-brands recorded a 4% increase in volumes for the first half of FY20. By revenue streams, Case Goods revenues increased by 2%, thanks to the strong performance in the UK, premium innovation, and solid growth in Ungava Spirits Brands. Commission revenue rose by 2% during the six months of FY20. The company’s revenues from other services like logistical fees and occasional bulk whisky sales among others jumped 40%. Corby’s earnings from operations increased 8% y-o-y to CAD 19.2 million, reflecting healthy revenue growth. Net earnings grew CAD 0.9 million or 7% y-o-y to CAD 14.3 million, thanks to the robust case good performance across domestic and international markets. However, higher overhead costs remained a drag. The company also declared a dividend of CAD 0.22 per share.

Recent update: On March 19, the company announced that it will be producing hand sanitizers amid COVID-19 outbreak.

Stock Recommendation: The coronavirus pandemic has destroyed demand for most of industries. However, we haven’t heard anything as of now for wines and spirits. The company’s flagship brands are among the top-selling brands in Canada. Further, investors should note that Corby has a strong debt free balance sheet which can easily withstand the current economic slowdown. The company has enough liquidity to survive and thrive. The company’s business remains strong and is likely to post profitable growth in the coming years, thanks to the premium innovation.  Corby’s current dividend yield of 5.70% looks juicy. Meanwhile, we believe that the current payout is sustainable despite challenges in the near-term. However, we do expect demand to go down from bars and restaurants across geographies due to the lockdowns following COVID-19 spread. However, the issue is transitory and could abate soon. Corby stock currently trades at a forward PE multiple of 18.67x, which we believe is going to expand in the future. Given the current scenario, we have given a “Speculative Buy” recommendation on Corby stock at the closing price of CAD 15.45 on 31^st March 2020.

CSW.A One-Year Daily Price Chart (Source: Thomson Reuters) 

Interfor Corporation 

Lower Price Realizations Keep us on Sidelines: Shares of Interfor Corporation (TSX: IFP) have corrected sharply so far this year. To be precise, Interfor stock has corrected about 56% year-to-date and underperformed the broader markets by a wide margin. Despite more than 56% drop in Interfor stock, we prefer to remain on sidelines.

Interfor offers a wide range of lumber products. The company has its operations in Canada and the United States and has an annual capacity of ~3 billion board feet.

Recent Update: The company announced that Senior Vice President & Chief Financial Officer Martin Juravsky had will be stepping down from his post effective April 30.

Q4FY19 Financial Highlights: IFP declared its quarterly results, wherein the company reported total sales of CAD 456.8 million, down from CAD 468.5 million in the prior-year quarter. The top line decline reflects lower average selling price of lumber (CAD 566/thousand fbm vs CAD 599/thousand fbm in Q4FY18). Production in the B.C. region stood at 187 million board feet, down from 205 million board feet in the previous quarter on account of the closure of the Hammond sawmill. Total volume sales stood at 681 million fbm, stood higher than 647 million fbm in Q4FY18.Net loss widened to CAD 41.7 million from CAD 13.5 million in Q4FY18.Lower sales and higher operating costs took a toll on the company’s bottom line. Total cash generated from operations stood at CAD 24.6 million, resulting primarily from lower trade receivable balances.

Q4FY19 Financial Highlights (Source: Company reports)

Stock Recommendation: The stock of IFP is quoting at CAD 6.26 with a market capitalization of CAD 417.78 Million. The 52-week trading range of the stock is CAD 4.75 and CAD 16.95, and currently, the stock is trading near its 52-week low. Despite the sharp fall in IFP stock we prefer to remain on sidelines. Investors should note that the demand destruction following COVID-19 outbreak in North America is likely to take a toll on IFP stock. The economic slowdown is likely to weigh on the housing and industrial demand in North America, in turn, IFP stock. Although we see some demand in repair and renovation segments, we believe it will not be enough to drive profitable growth. We expect average selling prices to stay low in the near-term, which will continue to hurt profitability. Also, unfavorable weather conditions are likely to remain a drag. However, the significant decline in IFP stock indicates that the negatives are priced in the stock and downside is capped. We maintain a ‘Watch’ stance on the stock at the current market price of CAD 6.26, up 4.16% as on 31^st March 2020.

IFP One-Year Daily Price Chart (Source: Thomson Reuters)

Disclaimer

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