Corby Spirit and Wine Limited. (TSX: CSW.A) is a Canadian manufacturer, marketer and importer of spirits and wines. The company owns or represent many of the 25 top-selling brands in the country and support its brands with innovative and award-winning marketing campaigns and events. Besides majorly sales in Canada, the company also exports its products in the United States, Europe, and other international markets.

Key highlights

• Ongoing & Upcoming Demands: The company believes that its well-known Canadian brand portfolio, along with its exclusive representation of a diversified portfolio of global brands, offers a route to long-term wealth creation. Customers' attention has been captured by its recognizable brands, resulting in an increase in demand. Furthermore, the relaxation of COVID-19 limits in the current fiscal year led in a strong Q2 rebound and boosted client demand; we believe this will strengthen the company's overall financials and product demand in the near future.
  

• Positive consumer environment: The spirits market expanded in volume and value in Q2 2022, thanks to a comeback in the on-premises channel, resilience in the off-premises channel, and vitality in international markets, according to the business. Furthermore, the company has seen share gains in some of its owned and represented key brands and categories, which is a significant plus.

• Registering sequential growth: Corby’s business has demonstrated resilience to date, despite global supply chain volatility, the spirits market is on high, as a result the company gained traction and witnessed a sequential growth in its operating margins and net margins. Its brands grew 9% in value and 4% in volume compared to the three months ended December 31, 2020, which is a key positive.

   Source: REFINITIV, Analysis by Kalkine Group

• Industry beating margins: The company's strong determination enabled them to outperform the industry median margins on several fronts in Q2 2022, which demonstrates the company's competitive edge within the industry. The following graph is portraying the same aspects.

Source: REFINITIV, Analysis by Kalkine Group 

• An income play: The Company has an excellent track record of dividend distribution, reflecting resilience and healthy cash flow generation. Recently, the Company paid a quarterly dividend of CAD 0.24 per share on March 4, 2022. Additionally, at the last closing price of CAD 19.98, the stock is offering a healthy dividend yield of 4.805%, which looks attractive.
  

Risks associated with investment           

Since the company operates primarily in the alcoholic beverages industry and has its own brands, any disruption in the supply chain, demand disturbance, export limitations, or covid restrictions could have a negative impact on the company's financials. 

Financial overview of Q2 FY 2022 (in thousands of Canadian dollars)

Source: Company Filing

• The revenue of the company increased to CAD 45.1 million in Q2 2022 from CAD 42.1 million in the previous corresponding period, primarily due to strong shipments led by strong consumer demand.
• In the reported period, the company has increased its cost of sales by 3% to CAD 18.1 million against CAD 17.5 million in pcp, along this marketing, sales, and administration expenses were also on the higher side.

• Primarily due to higher the company clocked elevated earnings from operation, which stood at CAD 12.0 million compared to CAD 10.6 million in pcp.
• The net earnings of the company stood at CAD 8.8 million against CAD 7.8 million in pcp, partially offset by higher tax expense.

Stock recommendation

The company witnessed positive consumer environment in the first half of FY2022, as the spirits market grew in volume and value with a rebound of the on-premises channel, resilience in the off-premises channel and dynamism in international markets. It has enjoyed share gains on some of its owned and represented key brands and categories, which is a key positive. In addition, the company's industry beating margin profile illustrates its competitive advantage within the industry. Furthermore, the stock is carrying a good dividend yield of 4.80%, which is appealing given the present macroeconomic and interest considerations.

On the valuation front, the stock is available at a TTM EV/ Sales multiple of 3.2x against an industry (Beverages) mean of 9.7x. Therefore, based on the above rationale and discounted valuation on TTM basis, we recommend a "Hold" rating on the stock at the closing price of CAD 19.98 as on April 22, 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 April 22, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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