Waterloo Brewing Ltd (TSX: WBR) engages in the production and distribution of alcohol-based products. Its products are distributed to end consumers primarily through The Beer Store in Ontario and Provincial Liquor Boards across Canada. It operates in a single industry segment which involves the production, distribution, and sale of alcohol-based products. 

Key Updates:

• Growth from LandShark® and Seagram brands: In FY21, the company reported a massive 44.9% y-o-y growth from the LandShark® sales volumes driven by the continued success of the inclusion of promotional items within specially marked cases coupled with the launch of LandShark® Seltzer during the early FY22. Apart from this, the company’s Seagram brand sales volumes also increased by 10.8% on y-o-y basis due to e to the continued success of the Island Time brand and growing traction from the new launched within the segment. We expect this momentum to continue in the coming quarters supported by the growing demand of the company’s products across the targeted audience.

FY21 Sales Volumes Update (Source: Company Report)

• Increase in dividend payment amidst sluggish macros: Despite the ongoing liquidity crunch and tepid macros scenario, the company reported dividend payment of CAD 4.0 million in FY22, which is higher than CAD 3.7 million in FY21. This is impressive as most the companies are lowering their dividend distribution in order to retain liquidity. Moreover, the stock of WBR is carrying a dividend yield of ~2.77% on an annualized basis, which looks impressive considering the ongoing interest rate scenario.

• Bullish Outlook: The Company has the exclusive Canadian rights to both the LandShark® and Margaritaville® brands for beer, cider, and coolers. WBR is focusing on in-case promotions, such as the inclusion of merchandise in specially marked cases of LandShark® bottles and provide increased marketing support to further grow the brand in Canada. This is likely to support the upcoming sales volumes, which is impressive. The Company will continue to utilize its leading-edge manufacturing capability with a focus on lowering costs and improving efficiency, likely to boost profitability margins.

Risks Associated with the Investments:

The demand of the company’s products is correlated to the persisting consumer preference and a shift in the consumer preference would lead to loss of market share and a drop in sales volumes.

FY22 Financial Highlights:

FY22 Financial Highlights (Source: Company Report)

• WBR announces FY22 result, wherein the company posted its revenue of CAD 111.7 million, significantly higher than CAD 86.6 million in FY21. The growth was supported by higher revenues from the rendering of services segment.
• The company reported a rise in cost of sales due to the subsequent rise in cost of sales. However, cost of sales stood higher at CAD 28.6 million v/s CAD 20.6 million in FY20.
• The period was marked by higher selling, marketing, and administrative expenses, rise in other expenses along with a surge in finance costs. Income before tax stood at CAD 8.1 million, soared from CAD 4.2 million in FY20, thanks to higher gross profit as mentioned earlier.
• The company reported its net income and comprehensive income for the year of CAD 5.8 million v/s CAD 3.0 million in FY20, supported by higher income before taxes, partially offset by an increase in an income tax expense.

 Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

The company reported a higher adjusted EBITDA of CAD 21 million in FY22, as compared to CAD 15.2 million in FY21. This is impressive considering the ongoing inflation scenario which is dampening the profitability of most of the companies. Moreover, this also reflects strong cost management, which is a key positive. 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 considered peers like Primo Water Corp, Diamond Estates Wines & Spirit Inc etc. Considering the aforesaid facts, we recommend a “Speculative Buy” rating on the stock at the last closing price of CAD 4.39 on May 24, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on May 24, 2022). Source: REFINITIV, Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV 

 Technical Analysis Summary

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.