Andrew Peller Limited

Andrew Peller Limited (ADW.A) is one of Canada’s leading producers and marketers of quality wines and craft beverage alcohol products. The Company operates through several front-line brands like Peller Estates, Trius, Thirty Bench, Wayne Gretzky, Sandhill, Red Rooster, Black Hills Estate Winery, Tinhorn Creek Vineyards, etc.

Q4FY20 Financial Highlights: Andrew Peller impresses with its decent results, wherein the Company reported sales of CAD 82.12 million, as compared to CAD 79.78 million in pcp. The increase in sales was primarily attributable to solid sales growth through the majority of its well-established bottled wine trade channels on account of the introduction of new products and new product categories, coupled with new and innovative sales and marketing strategies. However, positives were partially offset by diminished sales within the personal winemaking market. The key reasons behind the lower sales in this segment were higher competition from subsidized lower-priced imported wines and lower duty-free export sales due to trade and political disputes between Canada and China. Gross profit surged to CAD 35.55 million, as compared to CAD 31.31 million in Q4FY20 along with a margin improvement (gross margin as a percentage of sales improved to 43.3% from 39.2% in pcp). The increase was primarily driven by a shift in product mix along with cost control initiatives. Adjusted EBITA stood at CAD 9.92 million, as compared to CAD 6.55 million in the previous corresponding quarter. Net loss during the quarter stood at CAD 0.99 million, as compared to a net profit of CAD 0.084 million in pcp, due to higher unrealized gains and losses on derivative financial instruments.

Q4FY20 Financial Snapshot (Source: Company Reports)

Key Risks: A prolonged lockdown or any other extended restrictions by the government is likely to weigh down on the group’s sales through duty-free export, restaurant, estate property and personal winemaking channels. Further, if the pandemic continues, the group’s supply chain might get affected, which is likely to hamper the group’s performance.

Stock Recommendation: The stock pf ADW.A plunged ~20%, so far this year, due to a stiff correction in the global equity markets due to a weak investor’s sentiment on account of COVID 19 pandemic. The products are categorized under the ‘essentials’, and consequently, all the production facilities and retail locations remained operations. The Company did not witness any material impact due to COVID 19. Further, the Management expects a stable demand for the products in the coming period and the Consumers are purchasing products through alternative trade channels available during the pandemic, which ensured constant cash flow generation during the period. Further, to cater to the excess demand for direct-to-home purchase, the Company has enhanced its capabilities. The group seems to have sufficient liquidity and did not cut or suspended dividend. The group has unutilized debt capacity amounting to CAD 24.2 million on its operating facility and CAD 112.4 million on its investment facility. Though the demand is stable in Canada, the Management believes its export, estate property hospitality and personal winemaking sales is likely to be affected by the pandemic. The stock is available at a significantly lower valuation as compared to the industry. The Stock of ADW.A trades at a Price to Cash Flow multiple of 13.7x on TTM basis, as compared to the industry (beverages) average of 18.0x. Hence, considering the aforementioned points and risks involved, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 9.40 per share as on June 19, 2020.

ADW.A Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Primo Water Corp

Primo Water Corporation (TSX: PRMW) is a beverage company based out of Canada and provides water solutions. The Group, along with its subsidiaries such as Aimia Foods, Eden Springs and DS Services, offers bottled water with office and home delivery. Primo also sells self-service refill drinking water, purified bottled water and water dispensers in Canada and in the USA.

Financial Highlights – Q1 Financial Year 2020 (28^th March 2020, USD, million)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2020 with the increase in the revenue from the US and Canadian operations, the net revenue increased to USD 474.2 million as against USD 427.7 million in Q1 FY2019. The gross profit stood at USD 273.3 million in the first quarter of the financial year 2020 versus USD 243.1 million in Q1 FY2019. Due to an increase in the financial expenses for the period, the Group reported an operating loss of USD 4 million in the Q1 FY2020 versus an operating profit of USD 0.7 million in the first quarter of the financial year 2019. The LBT (loss before tax) from continuing operations stood at USD 30.7 million in Q1 FY2020 versus a LBT (loss before tax) from continuing operations of USD 24.1 million in Q1 FY2019. The net loss from continuing operations stood at USD 27.4 million in the first quarter of the financial year 2020 versus a net loss from continuing operations of USD 22.7 million in Q1 FY2019. The Group reported a net income (continuing and discontinued operations) of USD 3.5 million in Q1 FY2020 versus a net loss (continuing and discontinued operations) of USD 19.7 million in Q1 FY2019. The basic and diluted earnings per share (continuing and discontinued operations) stood at $0.02 in Q1 FY2020 versus a basic and diluted loss per share (continuing and discontinued operations) of $0.14 in Q1 FY2019.

Share Price Performance

Daily Chart as of 19^th June 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Primo Water Corp shares closed at CAD 19.18 at the time of writing after the market closed on 19^th June 2020. Stock's 52 weeks High is CAD 21.24 and Low is CAD 9.23.

Conclusion

The Group, through its wide-ranging scope, had accelerated growth organically and through acquisitions and strategic partnerships. The Company continues to implement the strategy and business model to deliver returns. The Group has shown an increase in financial performance in the first quarter of the financial year 2020. Both the top-line and the bottom-line performance has improved for the period. It has witnessed a growth in the revenue from the US, Canadian and all other countries businesses for the current period. The Group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The Group’s cash balance has decreased and generated lower cash flow from operations. The Company has continued to increase investments for growth initiatives and marketing drive, while increasing organic operating margins. The Company stays focused on building the long-term health of the brands, a culture of everyday efficiency, and supported by data-led insights. Due to the outbreak of Covid-19, the Group will pause all development and acquisition activities and will take measures to preserve cash and reduce costs.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 19.18 (as on 19^th June 2020).

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.