Corby Spirit and Wine Ltd. (CSW.A) is a Canadian manufacturer, distributor and importer of spirits and wines. The group derives its revenues from the sale of its owned brands in Canada and other international markets, and also earns commissions from the representation of selected non-owned brands across the Canadian marketplace. 

Key Highlights:

• Recovery in demand: During the second quarter of FY22, the demand for spirit and wines has improved, supported by the lifting of COVID-19 restrictions, robust H1 recovery within the on-premises channel coupled with higher international demand. Notably, volumes from the international segment grew 27% and 9%, respectively, in Q2FY22 and H1FY22, respectively to

79 k and 144k, respectively. We expect the above momentum to continue in the coming days, which would support the company’s upcoming performance.

• Improvement in shipment volumes: The company reported a 4% y-o-y growth in the shipment volumes of 619k in Q2FY22, supported by improved performance from J.P. Wiser’s Canadian whisky and growth from Lamb’s rum brands. Additionally, the company’s shipment value grew 9% over pcp, which is a key contributor to the improved performance.

Source: Company Report

• Robust profitability margins: The company commands a higher margin than the industry median, which is a key positive and illustrates improved operational efficiency. Notably, the company reported its EBITDA margin and operating margins at 34.1% and 26.6%, respectively, in Q2FY22, higher than the industry median of 18.9% and 14.4%, respectively. Moreover, the company’s net margin stood higher at 19.6% in Q2FY22, versus the industry median of 10.4%.

• Healthy balance sheet: On Q2FY22, the company reported an impressive debt to equity ratio of 0.02x, as compared to the industry median of 0.71x. This will help the company to use its cash flows for alternative projects, while the lower leverage will help the company to outpace its peers during the rising interest rates environment.

Risks associated with the investment:

The company might face steep competition due to entry of new player within the sector, which might lead to drag the market share of the company. Moreover, due to any shift in consumer taste and preferences, the product of the company might witness a slide in the sales volume.

Q2FY22 Financial Highlights:

Q2FY22 Income Statement Highlights (Source: Company Report)

• A announces its quarterly result, wherein the company posted its topline of CAD 45.1 million, improved from CAD 42.1 million in pcp. The growth was supported by Case goods sales and higher commission income.
• Earnings from operations surged to CAD 12.0 million from CAD 10.6 million in pcp, supported by higher revenue partially offset by slight increase in both Marketing, sales & administration costs and cost of sales, respectively.
• Net earnings stood at CAD 8.8 million, increased from CAD 7.8 million in pcp, driven by higher earnings from operations and lower finance expense, while an increase in income taxes stood as a drag.

Stock Recommendation

The company has increased its dividend payment of CAD 12.8 million in H1FY22, as compared to CAD 11.9 million in pcp, backed by solid cash flow growth. Moreover, the CSW.A stock carries a dividend yield of ~5.647% on an annualized basis, which looks attractive considering the persisting interest rate scenario. The stock of CSW.A is available at an EV to Sales multiples of 2.8x on TTM basis, as compared to the industry (Beverages) mean of 11.1x. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of CSW.A at the closing price of CAD 17.00 on March 02, 2022.

One-Year Technical Price Chart (as on March 02, 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

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