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

Key Highlights:

• Increased revenue: The group reported an increase in sales over the previous four quarters. In Q3FY22 the company saw an uptick in the revenue to CAD 103.48 million as compared to CAD 99.22 million in Q2FY22, and in Q1FY22 sales were CAD 92.39 million as compared to CAD 79.12 million in Q4FY21. The continuous increases in sales across the last four quarters give confidence in the company’s growing revenue trajectory in near future considering the persisting trend because of the rising demand for its products.

• Reduced expenses: The company is focused on taking the various initiatives to reduce the costs and increase its productivity through continuous reviewing and monitoring of its operations and cost structure. This is evident as the group reported a decline in its overall expenses during Q3FY22 to CAD 91.40 million as compared to CAD 94.83 million in Q3FY21.

• Improved outlook: For FY22, the management is committed to achieving the strategic growth plan through the expansion of its core business as a manufacturer and marketer of quality wines and related products. The company has entered the sprits and craft beer segment through strategic ties with Wayne Gretzky and launched ciders and seltzers through its own brands. The group is further evaluating its growth plans via cross border acquisitions too.

Risks associated with investment

The change in the consumer's preferences and spending habits can impact the company's revenues. The acquisition strategy is also a vital risk in terms of acquiring at an expensive valuation which can hurt the company’s pocket. Further risks are, a slowdown in the economy that can cut the discretionary spending of the consumers, currency risk, liquidity risks, and rising inflation, which can hurt the margins in near future.

Financial overview of Q3FY22 (Expressed in thousands of CAD)

Source: Company Filing 

• For Q3FY22, the group reported a decline in revenues at CAD 103.48 million as compared to the revenue of CAD 111.06 million in the previous quarter (Q3FY21). The decline in the discretionary spending capacity and changing tastes and preferences impacted the revenue of the company in Q3FY22.

• The gross profit of the company saw a dip to CAD 34.01 million in Q3FY22 against CAD 38.88 million in Q3FY21.

• The group reported lower net earnings for Q3FY22 at CAD 3.10 million against the net earnings of CAD 10.23 million in Q3FY21.

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation:

The group reported increased revenue of CAD 103.48 million during Q3FY22 as compared to the sales of CAD 99.22 million in Q2FY22. The company improved its operational efficiency by reducing the overall expenses to CAD 91.40 million in a similar period (Q3FY22) against the overall expenses of CAD 94.83 million in Q3FY21. The management is optimistic in terms of achieving its growth plans and entering various markets by forming strategic ties and getting into new brands and products. On the valuation front, the stock is measured on the EV/ Sales based multiple and the stock is currently offered at 1.3x as compared to the industry (consumer non-cyclical) mean of 2.8x, suggesting the stock is still undervalued. We have considered Diamond Estates Wines & Spirit Inc., Alkaline Water Company Inc., etc as the peer group for the comparison. 

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock of ADW.A at the last closing price of CAD 6.66 on May 18, 2022. Additionally, the 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 of May 18, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

 Technical Analysis Summary

Disclaimer

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