Alcanna Inc (TSX: CLIQ) is a private sector retailer of alcohol in North America and the largest in Canada by number of stores, operating in more than 170 locations in Alberta and British Columbia under the Wine and Beyond, Ace Liquor Discounters and Liquor Depot banners. The Company's majority-owned subsidiary, Nova Cannabis Inc., also operates in more than 50 cannabis retail stores in Alberta, Ontario, and Saskatchewan       

Key highlights 

• Strategic disinvestments taking place: Recently on March 31, 2021, the company sold its nineteen convenience-format retail liquor stores in British Columbia to Otter Home and Farm Co-operative for the net proceeds of CAD 80.9 million. After this it further sold four more convenience-format retail liquor stores for expected cash proceeds of CAD 5.3 million.

• Created separate publicly-traded Company for cannabis business: Since the completion of the transaction, which spun out the Company's cannabis business into a separate publicly-traded company, Nova Cannabis Inc., the Company's possess approximately 63% ownership of Nova Cannabis.
  

• Liquor business gaining momentum: The company's liquor shops maintained their good performance from the previous year in the first quarter of 2021, with same-store liquor sales from continuing operations growing 7.9% and gross margin dollars from the liquor division from continuing operations increasing 7.5%. The company's big-format retail liquor stores, Wine and Beyond, have had the most growth in same-store sales, which we believe is mostly due to new customers flocking to Wine and Beyond because of the value and broad product range this format provides.
  

Financial overview of Q1 2021 (In thousands of Canadian dollars)

Source: Company

• In Q1 2021, the consolidated sales increased 2.8% to CAD 142.2 million compared to CAD 138.2 million in the previous corresponding period. The revenue rose due to the change in pricing strategy implemented by the group in the past and the change in the customer's consumption habits.
• Cannabis sales increased by CAD 2.7 million or 17.2% to CAD 18.4 million in Q1 2021, compared to CAD 15.7 million in the pcp.  

• The gross margin for the period stood at CAD 32.5 million, up CAD 1.5 million or 4.9%, compared to CAD 31.0 million in the previous corresponding period.

• Higher losses and high finance cost is a caution for the company as its loss before income tax increased to CAD 9.9 million in the reported period against CAD 8.4 million in pcp.

• The company posted a net loss of CAD 9.4 million in Q1 2021 from its continuing operation against a loss of CAD 8.4 million in Q1 2020.
  

Risk associated with investment

Any further lockdown and restrictions due to the pandemic might result in supply chain disruption and temporary closure of the stores, which would affect the group’s performance adversely. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

In Q1 2021, the company's liquor division continued the strong performance as achieved in 2020. Same-store liquor sales from continuing operations rose by 7.9%, and gross margin dollars from the liquor division from continuing operations increased 7.5% to CAD 27.7 million from CAD25.8 million, which is appreciable. Furthermore, it believes the new behavior patterns which have become entrenched in people's lifestyle would continue to some extent even after the COVID-19 pandemic subsides. The group has selectively sold assets, with the profits being utilized to invest in its Canadian liquor and cannabis retail operations and debt reduction. Consequently, the company's revenue would increase due to increased consumer reach, and its margins would improve as the debt level decreases. Therefore, based on the rationale discussed above and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 6.69 on June 30, 2021. 

One-Year Technical Price Chart (as on June 30, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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.