Alcanna Inc

Alcanna Inc (TSX: CLIQ) is a private sector retailer of alcohol in North America and the largest in Canada by number of stores, operating more than 170 locations in Alberta and British Columbia under the Wine and Beyond, Ace Liquor Discounters and Liquor Depot banners.

Why Should Investors Book Profit?

• Lower margin profile v/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across operating matrix against the industry, which exhibits the pressure on company.
• Heavily leveraged: The company’s debt to equity ratio at the end of June 2021 stood at 1.46x, higher than the industry median of 0.84x. Additionally, its % LT Debt to Total Capital stood at 50.8% against the industry median of 29.7%. These factors imply higher balance sheet risks.
• Poor inventory management: In Q2 2021, the company’s inventory turnover ratio stood at 1.5x against the industry median of 2.9x. Low inventory turnover indicates weaker sales and declining demand for a company's products. On the flip side, it is having higher average inventory days of 60.9 days against the industry median of 31.6 days, indicating the company's cash is tied up in inventory for a longer period, meaning it cannot be deployed for other purposes.
• Long cash cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 64.3 days against the industry median of 11.7 days.
• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~85.18 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The resurgence in Delta variant cases is throwing a lot of uncertainties, and it could impact the company’s sales in retail sector as government could reinforce some mandated lockdowns to counter the spread. Furthermore, the company is having a poor inventory management along with higher cash cycle days, which could lead to poor liquidity profile. Additionally, it holds highly leveraged balance sheet, which is implying some extra pressure. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 8.21 on September 16, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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