Alcanna Inc. (TSX: CLIQ) is a retail distribution company, offering alcoholic beverages and cannabis across Canada. Liquor segment drives the majority of the revenue for the company. The group runs its business via retail stores under the names such as Wine & Beyond, Liquor Deport, Ace Liquor, Brown Jug, and Nova Cannabis in Alberta, B.C., and Alaska.

Q1FY20 Financial Highlights: Alcanna announced its quarterly results, wherein the company reported sales of CAD 162.11 million, considerably higher than CAD 126.52 million in the previous corresponding quarter. The increase was driven by a 10.7% y-o-y increase in Canadian same-store liquor. Gross margin stood higher at CAD 36.88 million, as compared to CAD 28.66 million, thanks to higher sales while an elevated cost of sales remained as a drag. The company reported an operating profit before amortization of CAD 7.70 million as compared to a loss of CAD 0.66 million in pcp. However, the company reported a higher property and equipment depreciation and right-of-use asset depreciation expenses, which resulted in an operating loss of CAD 0.349 million as compared to an operating loss of CAD 7.29 million in Q1FY19. Net loss from continuing operations stood lower at CAD 6.52 million, as compared to CAD 9.42 million in pcp. The company exited the quarter with a cash balance of CAD 2.43 million while total asset stood at CAD 492.99 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: A significant part of the income is generated in US currency denomination, a fluctuation in the exchange rate would have an adverse impact on the income of the company. Any extension in lockdown restrictions might result in supply chain disruption and temporary closure of the stores, which would affect the group’s performance adversely. Further, due to a shift in consumer spending, the company might witness a soft demand for liquor retail.

Stock Recommendation: The stock of CLIQ appreciated ~10% and ~84% in the last one month and three months, respectively, despite a prevailing weak investor’s sentiment. The group’s liquor and cannabis store categorized under essential services and remained open to date. The offerings of the company are directly related to domestic consumption, which is expected to remain resilient on a long-term basis. In the recent past, the company witnessed an increase in the product demand aided by the implementation of different marketing techniques in order to enhance the customer base, which is a key positive for the company. To weather the Current pandemic, the company has strategically reduced the capital expenditure plans for 2020 to retain the liquidity levels. The group also notified that it has sufficient capital and credit availability to finance the operating requirements. On the valuation front, the stock of CLIQ is available at an EV/Sales of 0.2x on NTM basis against 1.3x of industry (consumer non-cyclical) median. Hence, considering the aforementioned fact and risk involved, we recommend a ‘Speculative Buy’ on the stock at the current market price of CAD 3.17 on 25 June 2020.

CLIQ Daily Technical Chart (Source: Refinitiv, Thomson Reuter)

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