Andrew Peller Ltd

Andrew Peller Ltd (TSX: ADW.A) is one of Canada’s leading producers and marketers of quality wines and craft beverage alcohol products. The Company markets wines produced from grapes grown in Ontario’s Niagara Peninsula, British Columbia’s Okanagan and Similkameen Valleys, and from vineyards around the world. 

Key highlights

• Made entry in spirits and craft beer categories: The Company has entered the spirits and craft beer industries, as well as produced ciders and seltzers under its own brand labels, thanks to its strategic partnership with Wayne Gretzky. Moreover, the Company believes higher-priced premium wine and spirits sales would continue to grow in Canada, generating higher margins and increased profitability compared to its lower-priced products, which is a key positive.
• Expanding product offering: The Company would continue to expand product offerings outside the traditional table wine segment into other alcoholic beverages where it is able to leverage its detailed knowledge of growth opportunities in the Canadian market.
• Increase in dividend distribution: Despite the adverse situation, when most firms are restricting their dividend payout to maintain solid liquidity, the company boosted its dividend payout by 10%. The annual dividend on Class A Shares was increased to CAD 0.246 per share. This demonstrates the group's financial strength and implies that it is a good friend to its shareholders.

Financial overview of Q1 2022

Source: Company

• In Q1 2022, the company clocked revenue of CAD 92.3 million compared to CAD 98.4 million in the previous corresponding period. The lower revenue was mainly due to government-mandated closures of hospitality sector, also licensee and export channels remained impacted in the first quarter of fiscal 2022 due to and restricted international travel.
• Gross profit for the period stood at CAD 35.0 million compared to CAD 40.1 million in pcp.
• On the back of higher S&A expenses along with higher amortization of equipment, the company posted lower earnings before tax of CAD 4.5 million compared to CAD 14.8 million in pcp.
• The company posted net income of CAD 3.2 million in Q1 2022, compared to CAD 11.2 million in pcp.

Risks associated with investment

The Company’s sales of wine and craft 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 low-priced imported wines.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The Company believes that sales would grow over the long term due to strong positioning of key brands, the continued launch of new and innovative products in both its core wine business and in the new product categories, as well as overall growth in the Canadian beverage alcohol market. The management also believes in generating sufficient cash flow from operations to meet its debt servicing, principal payment, and working capital requirements over both the short and long-term through continued profitability and strong management of working capital and prioritization of capital expenditures. Furthermore, it re-opened the recently acquired Riverbend Inn to guests and expects strong and growing contribution from it. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 8.60 on August 12, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 12, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Goldmoney Inc

Goldmoney Inc. (TSX: XAU) is engaged in precious metal sales to its clients on its online platform. Its services include arranging delivery and storage of precious metals for its clients, coin retailing, and lending.

Key highlights 

• Improved operating matrix on sequential basis: On a sequential basis, the firm has showed some lively performance, improving on all criteria of its operational matrix. Furthermore, it is constantly collaborating with clients; as a result, its visibility is growing in tandem with volume, which is commendable.

• Generated net cash from operating activities: The company, in the reported period garnered net cash from operating activities of CAD 3.61 million compared to net cash used in operating activities of CAD 5.4 million in the previous corresponding period. The increase is attributable to non-cash adjustments and increase from changes in working capital.

• Growth in Asset Under Custody: The company's asset under management has grown gradually in recent years, owing to its continued focus on offering a smooth experience, as well as additional services such as custody arrangement, dealing, managing, and unrivalled research. It has clients in 120 countries and manages about CAD 2.26 billion in precious metal assets.

• Restructured Jersey operations: In January 2021, the Company committed to a plan to restructure its operations by consolidating its Goldmoney.com precious metal trading activities by transferring and combining the Jersey operations with its Canadian and United Kingdom operations. The restructuring process of its Jersey operations were completed during Q1 2022, and it is expected to reduce payroll costs from Q2 2022 onward.

Financial overview of Q1 2022 (Expressed in Canadian Dollars)

Source: Company

• In Q1 2022, the company posted revenue of CAD 94.7 million compared to CAD 173.4 million in Q1 2021. The lower revenue was primarily due to decreased metal trading operations.
• Gross profit in the reported period stood at CAD 6.1 million against CAD 10.6 million in the previous corresponding period. The decrease is due solely to decreases in gross margin, fee revenue and gain on revaluation of precious metals.
• Operating income for the period was of CAD 2.4 million compared to CAD 5.6 million in pcp, although the payroll expenses increased to CAD 1.4 million V/s CAD 1.3 million in pcp.
• Net income stood at CAD 0.9 million compared to CAD 6.0 million in pcp. The lower net income was mainly due to lower revenue along above stated reasons.

Risks associated with investment

The Company is exposed to price risk concerning the price of gold, silver, platinum, and palladium held as assets. Commodity price risk is defined as the potential adverse impact on the earnings of the Company. Other risks involved are like Foreign Currency Risk, Interest Rate Risk, and Liquidity Risk, etc. 

Stock recommendation

Despite the fact that precious metals markets are now volatile, we expect the company would perform well as investors deal with the economic repercussions of the pandemic and the low-interest-rate environment. Furthermore, over the next two financial quarters, the company's expenditures would be significantly reduced, and all of its clients will be returned to normal trading activity on the platforms following the brief period of transition and re-onboarding that occurred over the previous quarter, which is a significant positive. Moreover, the company is showing improvement on sequential basis, improving its operating matrix is appreciable. On top of all, it intends to cut its payroll expenses from Q2 2022 onwards after the restructuring of its Jersey business. On the valuation front, the stock is available at an EV to Sales multiple of 0.25x on TTM basis, which is significantly lower than the industry median of 5.3x. Hence, considering the above rationale, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 2.51 on August 12, 2021. 

Technical Analysis Summary

One-Year Technical Price Chart (as on August 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.