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How to profit from Canada’s wine renaissance

Vincor brands Jackson-Triggs wines are displayed at a Wine Rack store in Toronto.

Norm Betts/Bloomberg News

The other night, I enjoyed a superb Pinot Noir with dinner. It was not from Burgundy or California, but from Niagara.

Canada's wine industry has undergone an amazing renaissance in the past 25 years. Gone are the days of syrupy Sherries and sweet bubblies that were once the hallmark of the industry. Today, wine makers from Nova Scotia to British Columbia are producing varietal wines that can hold their own with any in the world. Business is booming.

The problem for investors is that there are few ways to participate in this unique growth story. Most of the wineries in this country are privately owned. Some of the rest, including Jackson-Triggs and Inniskillen, were the property of U.S. giant Constellation Brands, which paid $1.1-billion for Vincor, the company that owned them, in 2006. On Monday, Constellation announced it is selling its Canadian wine business to the Ontario Teachers' Pension Plan for $1.03-billion. The deal includes the Jackson-Triggs and Inniskillin wine brands and is expected to close at the end of 2016.

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That leaves Canadian investors with only two ways to participate directly in our domestic wine business. One is through a small company called Diamond Estates, which trades on the Toronto Venture Exchange as a penny stock under the symbol DWS. The other is the more substantial Andrew Peller Ltd. (ADW.A-TSX, ADW.B-TSX). It has been on a strong run, doubling in value in the past year, but I still recommend it as a buy. Peller rose on the news from Constellation, rising as much as 10 per cent during trading Monday. Here are some details about the company.

Background

Andrew Peller is a leading producer and marketer of Canadian quality wines with operations in British Columbia, Ontario and Nova Scotia. Its premium brands include Peller Estates, Trius, Hillebrand, Thirty Bench, Crush, Wayne Gretzky, Sandhill, Calona Vineyards Artist Series and Red Rooster. It also produces several mass-market brands such as Peller Estates French Cross.

Stock performance

I first recommended this stock in my Internet Wealth Builder newsletter in July, 2013, as a good way to play the Canadian wine industry. At the time it was trading at a split-adjusted price of $4.68. The shares hit an all-time intra-day high of $12.80 in trading Monday.

Recent developments

The company reported good results for the first quarter of fiscal 2017, which ended June 30. Peller showed a 5.8-per-cent increase in year over year sales to $87.9-million, thanks to strong organic growth and the successful launch of new products. Net earnings increased an impressive 28.2 per cent to $8.6-million, or 62 cents per share. That was up from $6.7-million, or 48 cents per share, in the same period last year.

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These results came on top of a record 2016 fiscal year, which ended March 3, in which revenue rose by 5.9 per cent and net earnings were ahead 26.1 per cent to $19.2-million, or $1.38 per class A share.

Share split

The directors approved a three-for-one share split for both the A and B units of the stock. That means for every 100 shares owned before, investors now own 300. The split was effective on Sept. 23, but the shares traded under the old price on a "due bill" basis (an obligation to investors who bought the stock between Sept. 23 and Oct. 14 to ensure they receive the additional shares from the split) until Oct. 14. Trading in the split-adjusted shares started Monday.

There are no tax implications for investors in this split. The company last split its stock in 2006, also on a three-for-one basis.

"We believe the proposed share split and the resulting increase in the number of shares outstanding will enhance shareholder liquidity, increase investor interest in the company, and bring the trading price into a more accessible range for all investors," CEO John Peller commented.

Dividend

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hareholders benefited directly from the company's strong results as the directors approved a 9-per-cent increase in the dividend, effective with the July payment. Post-split, the quarterly payment will be 4.083 cents per share (16.33 cents annually) for a yield of 1.4 per cent.

The company also announced the implementation of a dividend reinvestment plan (DRIP) for class A shareholders. Under the program, dividends may be used to purchase new stock from the company treasury without paying brokerage sales commissions.

Caution

The shares are thinly traded – daily volume for the A shares rarely exceeds 10,000, although that should improve post-split.

Conclusion

The company continues to generate solid returns and the dividend hike and stock split show its continued commitment to shareholders. Ask your adviser if the stock is suitable for your portfolio.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to buildingwealth.ca.

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About the Author

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. More

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