Andrew Peller Limited

Andrew Peller Limited (TSX: ADW.A) is a wine producing company and is engaged in the production and marketing of wine and spirit products in Canada. 

Key Updates:

• Recent Acquisitions: On February 26, 2021, the company acquired full stake of The Riverbend Inn and Vineyard in Niagara-on-the-Lake, Ontario, at a price consideration of CAD 10 million. The property is well located and has more than 17 acres of prime vineyards and a 21- room hotel and restaurant, which is situated directly adjacent to the Company’s Peller Estates Winery. As per the Management, the acquisition would complement the Peller Estates Winery, as it offers new vineyards with more than 57 acres of high-quality grape, fully managed by the group’s winemakers.
• Growing traction for premium products: The company believes that the demand for the higher- priced premium wine and spirits have grown in the recent past, while the scope of expansion remains high in the future too. The increase in demand is supported by changing consumer preference towards premium segments. Notably, the premium category generates a relatively higher-margin than the company’s lower-priced products, which would further support the company’s overall margin.

Q3FY21 Financial Highlights:

• The group announced its third-quarter result, wherein the company posted sales of CAD 111.060 million, reflecting a growth of 9.3% on y-o-y basis. The increase was driven by an increase in sales at provincial liquor stores and other retail channels, partially offset by a reduction in demand from the hospitality, licensee sales and lower duty free export sales on account of COVID-19 restrictions.
• Gross profit stood at CAD 38.880 million, as compared to CAD 39.549 million in the previous corresponding period (pcp). The decline was due to the higher cost of goods sold (CAD 69.523 million versus CAD 59.629 million in pcp).
• The group reported net earnings for the period at CAD 10.236 million, as compared to CAD 8.056 million in pcp, supported by a gain on debt modification and financing fees amounting CAD 2.312 million.
• The group reported a cash balance of CAD 3.557 million, while total assets were recorded at CAD 515.942 million.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The operations are directly correlated with consumer spending and consumer preferences. A shift in consumer preference due to the introduction of a new product, changes in discretionary spending etc. may take a toll on the overall sales volume.

Valuation Methodology (Illustrative): Price to Earnings based

(Note: All forecasted figures have been taken from Thomson Reuters).

Stock Recommendation:

Notably, in the recent past, the group marked its presence within the spirits and craft beer categories through its strategic alliance with Wayne Gretzky and has introduced sangrias and ciders through its own branding. Moreover, the group would continue to expand product other than the traditional table wine segment like other alcoholic beverages and would be able to take advantage of the growing demand coming within the Canadian market. Historically, the alcoholic beverage category has remained resilient across economic cycle due to the nature of the product. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have industry (Consumer Non-Cyclicals) median etc. Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 10.47 on March 10, 2021.

One-Year Price Chart (as on March 10, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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