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

Key Updates:

• Higher cash balance: At the end of Q3FY21, the company reported a higher cash balance of CAD 12.613 million, versus CAD 2.737 million recorded in Q4FY20. An increase in the cash balance is a key positive as it boosts the overall liquidity of the firm. Moreover, the management expects that the company would generate sufficient cash flow from operations to meet its debt servicing and working capital requirements over both the short and long-term basis.

• Bullish sectoral outlook: Over the long-term, the higher-priced premium wine and spirits sales are likely to grow in Canada, which is likely to boost the company’s margins and cash flows in the coming days. Notably, the group also marked its presence across the spirits and craft beer categories through its strategic alliance with Wayne Gretzky and introduced ciders and seltzers through its own brand labels, which are expected to gain traction in the coming days.

• Impressive dividend yield: The stock of ADW.A carries an impressive dividend yield of ~3.083% on an annualized basis, which looks decent considering the persisting interest rate scenario. Moreover, the company announced a higher dividend distribution of CAD 5.026 million in H1FY22, as compared to CAD 4.576 million in pcp, which is a key positive as most of the companies are lowering or suspending its dividend distribution in order to retain liquidity.

Risks: A shift in consumer preference due to the introduction of a new product, changes in discretionary spending etc. would take a toll on the overall sales volume and would dampen the company’s performance. Moreover, due to any natural disaster, the group might fail to source domestically grown premium quality grapes, which might impact the company’s production.

Q2FY22 Financial Highlights:

• A announced its quarterly results, wherein the company reported revenue of CAD 99.224 million, decline from CAD 104.410 million in the previous corresponding period (pcp). The decline was primarily due to a slide in demand due to a change in purchasing pattern of the consumers.
• The group reported a gross profit of CAD 39.997 million, slightly lower than CAD 41.549 million in pcp. The corporation reported a lower cost of goods sold of CAD 56.816 million v/s CAD 60.245 million in pcp.
• The quarter was marked by higher selling and administration costs (CAD 26.587 million v/s CAD 21.727 million in pcp), coupled with a higher Interest expense (CAD 2.478 million v/s CAD 1.813 million in pcp), partially offset by lower other expenses. Net profit stood at CAD 13.090 million, versus CAD 12.674 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): Price to Earnings based

  Analysis by Kalkine Group 

Stock Recommendation:

In the recent past, ADW.A is focusing to improve its offerings through better product development and also prioritizing its sales & marketing activities as per the consumption trend in Australia. Moreover, the management is pro-actively monitoring its cost structure in order to boost its margins for the coming quarters. These are expected to improve the company’s operational metrics and would result into better outcome. We have valued the stock using the Price to Earnings relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered the industry (Beverages) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 7.98 on January 18, 2022.

One-Year Technical Price Chart (as on January 18, 2022). Source: REFINITIV, Analysis by Kalkine Group 

  Technical Analysis Summary 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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.