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 Highlights

• Robust operating matrix: Despite the turmoiled environment, the Company maintained its pace and witnessed spirited performance across its Revenue, EBITDA, and Net income. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

    Source: Company Filing, Analysis by Kalkine Group

• Top performer in an industry: The company outperformed the industry, which had an overall volume reduction of 3.2%. Despite this, Waterloo Brewing was able to attract and keep co-manufacturing partners while delivering excellent outcomes. In comparison to the previous year, co-manufacturing volume increased by 73%, while total owner brand volume remained constant. The Company's existing track record of performance is unrivalled in the industry, and it demonstrated its ability to capitalize on opportunities and optimize growth potential.

• Adding capacity: In fiscal 2022, the Company completed the installation of a second canning line which increased canning capacity from 0.45 million hectolitres to 1.20 million hectolitres annually. The Company also completed several liquid capacity enhancing projects which increased total liquid production capacity from 0.75 million hectolitres to 1.40 million hectolitres annually.
  

Risks associated with investment 

The Company’s sales of alcoholic beverages products are affected by the general economic conditions and social trends as changes in discretionary consumer spending and consumer confidence, future economic conditions, changes to inter-provincial trade laws, tax laws, the prices of its products and health trends. Moreover, it also faces competition from other brands. 

Financial overview of FY 2022 (Expressed in CAD)

Source: Company Filing 

• In FY 2022 the Company posted higher revenue at CAD 111.7 million, against CAD 86.6 million in the previous corresponding period. The revenue was impacted primarily by an increase in co-manufacturing business from both new and existing customers.
• Gross profit in the reported period stood at CAD 28.6 million, against CAD 20.6 million in pcp. An increase was due to lower cost of sales which represented 74.3% of revenue in fiscal 2022, compared to 76.1% in fiscal 2021.
• Income before tax swelled to CAD 8.1 million against CAD 4.2 million in pcp, while the net income increased to CAD 5.8 million against CAD 3.0 million in pcp.

Valuation Methodology Illustrative: EV to Sales

Analysis by Kalkine Group 

Stock recommendation

In FY 2022, the company posted robust financial numbers. It posted a record annual EBITDA of CAD 21.0 million on net revenue of CAD 111.8 million, which represents growth of 38% and 29% respectively. Despite challenges across the industry such as supply chain disruptions, inflationary cost pressures and overall beer category softness, Waterloo Brewing continues to grow aggressively. Furthermore, with the newly installed second can line now fully operational, the group is experiencing margin and revenue growth.  To maintain this momentum and mitigate supply chain risks in the coming year, it is proactively securing supply of critical materials, which is a key positive.

Therefore, based on the above rationales and valuation, we recommend a “Speculative Buy” rating at the last closing price of CAD 4.45 as on May 04, 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 on May 4, 2022). Source: REFINITIV, Analysis by Kalkine Group

  Technical Analysis Summary

Disclaimer

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