Is the wine party over or just starting?

ADW.A - Andrew Peller Ltd.

Andrew Peller is a leading producer and marketer of quality wines in Canada. The company owns wineries in British Columbia, Ontario, and Nova Scotia and operates through 100 independent retail stores across Ontario. These stores are company owned, selling only Peller-branded wine. Andrew Peller’s products are sold predominantly in Canada.

Andrew Peller’s premium portfolio of brands includes Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Copper Moon, Calona Vineyards Artist Series VQA wines and Red Rooster. Its Peller Estates brand is the top‐selling wine in the English Canada wine market. Some of its key value priced brands are Hochtaler, Domaine D’Or, Schloss Laderheim, Royal, Sommet, Copper Moon, Black Cellar, etc.

Andrew Peller has entered the spirits category, through its strategic alliance with Wayne Gretzky. It now produces craft beverage alcohol products, including No Boats on Sunday ciders, Wayne Gretzky No. 99 Red Cask, No. 99 Ice Cask, and 99 Proof Canadian Whiskies and No. 99 Canadian Whisky Cream products.

Investment Data

Revenue Growth & Market Exposure

As one of Canada’s most respected producers of wines across all key price segments, Andrew Peller produces a wide range of wines and spirits. The company is well-known for its signature products like Icewine, Chardonnay and Riesling as well as premium and ultra-premium red wines. Currently, Andrew Peller commands over 10% share of the English Canada wine market. It also offers its customers personal winemaking products through its wholly owned subsidiary, Global Vintners Inc., which is the recognized leader in personal winemaking products.

With over four decades of rich experience, Andrew Peller has developed a detailed knowledge of the alcoholic beverage industry in Canada. The company’s reputation and quality products differentiate it from contemporaries. A wide network of company-owned retail stores in Ontario and award-winning estate wineries form a wide moat around the company’s business.

Andrew Peller enters into strategic acquisitions from time to time which further supports its business objectives. It has successfully integrated 17 acquisitions since 1995 with a total investment of more than $200 million. The contribution from acquisitions completed last year resulted in more than 14% increase to its 2018 net income.

Andrew Peller looks forward to launching new wine and other craft alcohol brands to take advantage of the increasing wine consumption in Canada. It has recently forayed into the craft beer market with the launch of its No. 99 Rye Lager. The company focuses on enhancing the consumer experience by continually investing in improving the quality and taste of its products as well as reducing cost. Andrew Peller continues to invest in improving the quality of grapes, wines, and spirits, its winemaking, and distillation capabilities, and strengthening its sales and marketing initiatives. A growth in higher-priced premium wine and spirits sales in Canada should drive the company’s margins.

Dividends

Andrew Peller has consistently paid dividends every year since 1979. The company’s most recent dividend hike was an impressive 19%, representing the seventh year of a continuous dividend increase. Andrew Peller has a payout ratio of 41% with a dividend yield of 1.5% currently. The company has maintained a dividend growth of 6% CAGR over the last decade.

Over the last four decades, Andrew Peller has accomplished a successful track record of growth and strong operating performance. A continual review of its operations and cost structure should further reduce costs and enhance its production efficiencies. The company’s focus towards increasing capacity, improving productivity and producing the best quality wines and spirits should go a long way in boosting its bottom line.

The acquisition of three premium and well-established wineries in British Columbia’s Okanagan Valley back in 2017, has helped Andrew Peller become the largest producer and the market leader of quality VQA wines in Canada. The company is expecting FY2019 results to benefit from a full year’s contribution from these wineries.

Andrew Peller is eyeing the expansion of its distribution channels and customer base through the introduction of new brands and entry into new markets. The company is also investing significantly in sales and marketing to drive future growth. It is nicely placed to benefit from favorable dynamics of the Canadian wine market offering a large market for higher-priced premium wine as well.

Competition

Andrew Peller operates in a highly competitive industry. The Canadian wine market offers a large market for low-priced imported wines from foreign countries. Both domestic and international wine industry is consolidating which has resulted in larger competitors for the company. The company competes with both national and international players. Quality and value, an industry-leading distribution network, and popular brands are Andrew Peller’s strong competitive advantages.

Bottom Line

Andrew Peller has a strong reputation for providing the highest quality wines and spirits at the best possible value. The company is in a good position to expand into new adjacent categories given its expertise and a large base of loyal customers. Andrew Peller should keep benefiting from increasing spends on consumer brand building, new product innovations, price increases and contribution from its acquisitions. As one of Canada’s most successful wine producers, it should continue to comfortably grow its dividends in the low double digit range in the future.

Great performance if you owned it 5 years ago. If you did not, what’s next? The drop is a little concerning as it is quite significant. The concern I have is that the dividend growth and revenue growth has not increased with the stock price which means the stock price has run away. The dividend growth is stable at 6% for the 3, 5 and 10-year metrics and so is the revenue growth at 4.7%. We should see a similar growth in stock price but it’s much higher. In addition, the Chowder score is simply not showing the growth in stock price that other metrics would surface. As such, I would be cautious and it might be time to cash in some profits. One other indicator is that the yield has dropped from the 10-year average of 2.5%.

ADW.A vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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