ANDREW PELLER LTD. $9.93 - Toronto symbol ADW.A

ANDREW PELLER LTD. $9.93 (Toronto symbol ADW.A; Income Portfolio, Consumer sector; Shares outstanding: 14.9 million; Market cap: $148.0 million; Price-to-sales ratio: 0.5; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.andrewpeller.com) is Canada’s second-largest wine producer, after Vincor Canada. Peller operates wineries in B.C., Ontario and Nova Scotia. It also imports wines and sells home-winemaking kits.

In its 2012 fiscal year, which ended March 31, 2012, Peller’s sales rose 4.3%, to $276.9 million from $265.4 million in fiscal 2011.

That’s because the company continues to launch new wines, particularly higher-priced premium wines. Its sales also benefited from a new joint venture with Wayne Gretzky Estate Winery and a recently purchased home-winemaking business.

These gains helped offset new taxes on certain wines sold through company-owned stores in Ontario. These taxes lowered sales by $2.4 million in fiscal 2012, and by $2.0 million in fiscal 2011.

The company earned $13.0 million, or $0.93 a share, in fiscal 2012. That’s up 15.8% from $11.2 million, or $0.78 a share, in fiscal 2011. If you exclude gains in the prior year on hedging contracts that Peller uses to lock in foreign exchange rates, earnings rose 16.9%.

The company’s gross margin (gross profits as a percentage of sales) fell slightly, to 38.7% in fiscal 2012 from 38.9% in fiscal 2011. That’s largely because it paid more for the wines that it imported.

The company recently signed a new deal to distribute its premium wines in China. It has also agreed to supply wine to the Burj Al Arab Hotel in Dubai. Expanding internationally cuts Peller’s risk, because it lowers the company’s reliance on North America.

Peller’s earnings could reach $1.00 a share in fiscal 2013. The stock trades at 9.9 times that estimate. The $0.36 dividend yields 3.6%.

Andrew Peller is a buy.

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