ANDREW PELLER LTD. $12 (Toronto symbol ADW.A; Income Portfolio, Consumer sector; SI Rating: Above average) is the new name for Andres Wines Ltd. The company is Canada’s second-largest producer of wines (after Vincor International Inc.), with about 12% of the market. It sells its products through provincial liquor agencies, as well as roughly 100 retail stores in Ontario.
Revenues grew at a compounded annual rate of 11.1%, from $139.0 million in 2002 (fiscal years end March 31) to $211.8 million in 2005. Part of the company’s growth comes from acquisitions, particularly small wineries that specialize in high-quality wines.
That has paid off, since premium wines generate higher profits for Peller than regular wines. That trend will likely continue. Recent medical studies that link moderate wine consumption with certain health benefits have also spurred sales.
Profits rose from $0.38 a share (total $5.3 million) in fiscal 2002 to $0.63 a share ($9.0 million) in 2004 (all per-share amounts adjusted for a 3-for-1 stock split in September 2006). Restructuring costs and other unusual charges cut income to $0.59 a share ($8.5 million) in 2005, and to $0.42 a share ($6.1 million) in 2006.
Thanks to acquisitions and the growing popularity of premium wines, Peller’s earnings in the three months ended September 30, 2006 rose 38.5%, to $0.18 a share (total $2.6 million) from $0.13 a share ($1.8 million) a year earlier. The benefits of a recent restructuring also contributed to the higher profits. Sales rose 4.0%, to $59.4 million from $57.1 million.
The company is using its strong earnings to diversify its operations and improve its market share in certain areas. As part of its recent $34.9 million purchase of B.C.-based winemaker Cascadia Brands Inc., Peller now owns Vancouver’s Granville Island craft brewery. Demand for premium beer is growing fast, and now accounts for 6% of Peller’s total sales.
Peller also has high hopes for its home winemaking operations. Although sales of wine kits (excluding an acquisition) fell 3% in fiscal 2006, Peller feels that its good reputation will help it attract new customers.
The company is using its cash to pay down long-term debt, which now stands at 0.5 times equity. Less debt will make it easier for Peller to finance new acquisitions.
The stock now trades at 17.1 times its likely fiscal 2007 profit of $0.70 a share. The $0.253 dividend yields 2.1%.
Andrew Peller is a buy
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