Corby Spirit and Wine Limited. (TSX: CSW.A) is a Canadian manufacturer, marketer and importer of spirits and wines. The company owns or represent many of the 25 top-selling brands in the country and support its brands with innovative and award-winning marketing campaigns and events. Besides majorly sales in Canada, the company also exports its products in the United States, Europe, and other international markets.

Key highlights

• Positive consumer environment: The spirits market expanded in volume and value in Q1 2022, thanks to a comeback in the on-premises channel, resilience in the off-premises channel, and vitality in international markets, according to the business. Furthermore, the company has seen share gains in some of its owned and represented key brands and categories, which is a significant plus.

• Ongoing & Upcoming Demands: The company believes that its famous Canadian brand portfolio, along with its exclusive representation of a diverse portfolio of foreign brands, provides a path to long-term value generation. Its iconic brands have captivated the attention of customers, resulting in a surge in demand. Furthermore, the easing of COVID-19 restrictions in the current fiscal year resulted in a robust Q1 recovery and increased client demand; we believe this will boost the company's overall financials and demand for its products in the short future.

• Industry beating margins: The company's strong determination enabled them to outperform the industry median margins on several fronts in Q1 2022, which demonstrates the company's competitive edge within the industry. The following graph is portraying the same aspects.

Source: REFINITIV, Analysis by Kalkine

• An income play: The Company has an excellent track record of dividend distribution and has increased its distribution over the years, reflecting resilience and healthy cash flow generation. Recently, the Company paid a 14% increase in its first-quarter dividend to CAD 0.24 per share, compared to last reported quarter. Additionally, at the CMP of CAD 17.17, the stock is offering a healthy dividend yield of 5.59%, which looks attractive.

Source: REFINITIV, Analysis by Kalkine

Risks associated with investment           

Since the company operates primarily in the alcoholic beverages industry and has its own brands, any disruption in the supply chain, demand disturbance, export limitations, or covid restrictions could have a negative impact on the company's financials. 

Financial Overview of Q1 2022 (in thousands of Canadian dollars)

Source: Company’s Filing 

• The revenue of the company has slightly declined to CAD 38.5 million in Q1 2022 from CAD 43.4 million in the previous corresponding period, primarily due to covid impact and restrictions in exports and its shipments.
• In the reported period, the company has increased its marketing, sales, and administration expenses to CAD 13.6 million from CAD 12.8 million in pcp. The rise was mainly due to expansion of its brands and events performance to make its products reach in overseas market.

• Primarily due to lower revenue and higher operating expenses in Q1 2022, the company clocked lower earnings from operation, which stood at CAD 9.7 million compared to CAD 14.7 million in pcp.
• The net earnings of the company stood at CAD 7.0 million against CAD 10.8 million in pcp, partially supported by lower tax expense.
  

Stock recommendation

The company witnessed positive consumer environment in the first quarter, as the spirits market grew in volume and value with a rebound of the on-premises channel, resilience in the off-premises channel and dynamism in international markets. It has enjoyed share gains on some of its owned and represented key brands and categories, which is a key positive. In addition, the company's industry beating margin profile illustrates its competitive advantage within the industry. Furthermore, the stock is carrying a good dividend yield of 5.59%, which is appealing given the present macroeconomic and interest considerations.

On the valuation front, the stock is available at a TTM EV/ Sales multiple of 3.0x against an industry (Beverages) mean of 12.0x. Hence, considering the aforesaid rationales and discounted valuations, we recommend a “Speculative Buy” rating in the stock at the closing price of CAD 17.17 on February 2, 2022, with double-digit (percentage term) upside potential. 

One-Year Technical Price Chart (as on February 2, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Disclaimer

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