Investors looking for a "boring, simple company" with strong brands in a growing, recession-proof sector may want to look into Andrew Peller Ltd..
Shares of the Grimsby, Ont.-based company behind its namesake wines and brands such as Thirty Bench, Sandhill and Wayne Gretzky Estates, are up about 5 per cent over the past year, now trading around $11.70. The stock has fluctuated between $10.13 and $13 over the past 12 months, taking into consideration a three-for-one share split in mid-October last year.
The stock has been getting more attention in recent weeks following a trio of acquisitions and new analyst coverage. Brian Pow of Acumen Capital Partners was the first equity analyst to pick up coverage of the company in August with a "buy" recommendation and now has a $14 price target, about a 20-per-cent premium from its current price. At least one more analyst is expected to pick up coverage in the coming weeks.
It's considered a slow, steadily growing company that's poised to do well regardless of how the economy is performing.
"We consider it to be a recession-resistant business. In good times and bad, people will turn to wine, or beer, to either commiserate or celebrate," said Ryan Modesto, chief executive officer at independent research company 5i Research. "It's also a boring, simple company and that's what we like about it."
Its product category is also increasingly popular among Canadians. According to Statistics Canada, wine's market share grew to 31.6 per cent in 2015-16 up from 27 per cent a decade earlier, while beer sales accounted for 41.5 per cent, down from 46.7 per cent in 2006-07.
Andrew Peller is capitalizing on that growth by gobbling up more wineries, including a recently announced purchase of three wineries in British Columbia for a combined price of $95-million.
Mr. Pow of Acumen Capital sees more consolidation opportunities ahead for the company, which already dominates the Canadian market.
"There's a growth mandate in place and the company is well capitalized," Mr. Pow said in an interview.
Andrew Peller has 14-per-cent share of the total Canadian wine market and 37-per-cent share of the wine market in English Canada, according to data in Mr. Pow's initiation report dated Aug. 15. That's second only to Arterra Wines Canada, formerly Constellation Brands Canada, which was bought by Ontario Teachers' Pension Plan late last year.
Mr. Pow forecasts the company's annual revenue to grow by about 3 per cent, which he says could even be conservative given the growth of wine sales in Canada and popularity of the Wayne Gretzky-branded whiskies.
Ontario's move to start selling wine in grocery stores should also help boost sales, as well as the potential removal of interprovincial trade barriers for alcohol sales pending the results of a Supreme Court case ruling expected later this year. Risks for the company include government regulation that could affect its competitiveness or higher taxes that could put pressure on its margins. The company also has a dual-share class structure, which may be a turn-off for some investors interested in companies that are potential takeover targets. The family controls 64 per cent of the voting shares and about a third of the overall shares, according to company CEO John Peller.
In an interview, Mr. Peller predicted a bright future for his company in particular with its premium products, but said growth will require a lot of capital investment, including into the three new wineries it just bought in B.C.
"Our company and my family feels good about the 20- to 30-year horizon for the industry and we're prepared to make significant long-term investments to make this happen," Mr. Peller said. He's also crossing his fingers that interprovincial trade barriers will be dropped, which would "allow domestic producers to have a local market advantage in their own country."
Meantime, Mr. Peller said the company will continue to focus on investing in premium wines, which have shown higher growth and stronger margins. The company continues to hunt for more acquisitions, but he said will be "very careful in making sure they add strategic value to our business and that we get them at the right price."
"We're confident about our prospects for growth and are feeling good and positive about the future," Mr. Peller said.