Investors saw this company’s focus on its more-profitable brands and cutting costs lead to a 4.4% rise in the firm’s gross margin during the most-recent quarter.
While sales were flat, earnings rose 0.4% despite competition from lower-priced imported wines.
For investors looking at new buying, the stock now trades at a reasonable 19.0 times the company’s 2020 earnings forecast.
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ANDREW PELLER LTD. (Toronto symbols ADW.A and ADW.B; www.andrewpeller.com) is Canada’s second-largest wine producer, after Arterra Wines (formerly the Canadian division of Constellation Brands.) Its wineries in Ontario, British Columbia and Nova Scotia account for 27.9% of Canada’s wine market by total volume. The company’s main brands include Peller Estates, Thirty Bench, Grey Monk Estates and Wayne Gretzky Estates.
Peller also continues to operate over 100 wine stores in Ontario despite the province’s recent move to let select supermarkets sell beer and wine. That’s because those stores let the company promote its own brands. They also boost its profits by not having to pay stocking fees to other retailers.
With the July 2019 payment, Peller raised your quarterly dividend by 4.8%. Investors now receive $0.05375 a share, up from $0.05125. The new annual rate of $0.215 yields 1.9%. Peller has paid dividends since 1979 and has raised the annual rate each year for the past seven years.
Growth Stocks: Smart acquisitions have delivered investor value
Since 1995, the company has completed 17 acquisitions, mainly of smaller wineries. In all, it paid $200 million for those businesses.
To add value for investors, it also continues to expand beyond wines. Through an alliance with hockey star Wayne Gretzky, Peller opened a facility in 2017 that makes wine and whisky under the Gretzky brand. In 2019, the partners expanded their alliance with the launch of a new craft beer called No. 99 Rye Lager.
As a result of those new operations and increasing demand for premium-priced products, the company’s sales rose 20.9%, from $315.7 million in 2015 to $381.8 million in 2019 (Peller’s fiscal years end March 31).
Peller’s overall earnings jumped 97.2%, from $0.36 a share (or a total of $15.2 million) in 2015 to $0.71 a share (or $30.1 million) in 2018. Earnings then fell 28.2% to $0.51 a share (or $22.0 million) in 2019. However, if you exclude unusual items, earnings improved 0.4% in 2019.
In its fiscal 2020 second quarter, ended September 30, 2019, Peller’s sales were flat year-over-year at $103.4 million. The launch of new products helped offset increased competition from lower-priced imported wines. If you exclude unusual items, Peller earned $8.7 million in the quarter, down 16.6% from $10.4 million. Per-share earnings fell 19.0%, to $0.17 from $0.21, on more shares outstanding.
However, thanks to company’s focus on its more-profitable brands and cost controls, its gross margin (gross profits divided by sales) improved to 44.8% in the quarter from 42.9% a year earlier.
Peller’s strong balance sheet also boosts investor value. Its long-term debt was $102.1 million (as of September 30, 2019), which is a moderate 21% of its market cap.
The company will probably earn $0.58 a share in the fiscal year ending March 30, 2020. Your shares trade at a high, but still reasonable, 19.7 times that forecast. Your $0.205 dividend is also safe and yields a solid 1.6%.
I purchased this stock in the low $9.00 area and watched it ride up to almost a double only to drop back to $11.00. Why should I hang on to it for a 1.6 % return? Doesn’t look like it will want to repeat it’s past performance any time soon. Lots of places to make that yield and barely covers a management fee of 1.5% . Am I missing something here Scott?
Thanks for your question. The stock is a thin trader, and as a result, may see wide swings over time. And it’s not so much suitable as an income stock, but rather a small-cap stock that should grow over time—and perhaps one day attract a takeover bid from multinational. But as you mention, there are better stocks available for income.
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X No, thanks. I don’t want to make big profits from growth stocks.
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I purchased this stock in the low $9.00 area and watched it ride up to almost a double only to drop back to $11.00. Why should I hang on to it for a 1.6 % return? Doesn’t look like it will want to repeat it’s past performance any time soon. Lots of places to make that yield and barely covers a management fee of 1.5% . Am I missing something here Scott?
Thanks for your question. The stock is a thin trader, and as a result, may see wide swings over time. And it’s not so much suitable as an income stock, but rather a small-cap stock that should grow over time—and perhaps one day attract a takeover bid from multinational. But as you mention, there are better stocks available for income.