On today's TSX Breakouts report, there are 46 stocks on the positive breakouts list (stocks with positive price momentum) and 12 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a consumer stock that appears on the positive breakouts list. The company has delivered steady sales growth and has been a strong performer for long-term investors. The company discussed below is Andrew Peller Limited, or APL (ADW.A-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Grimsby, Ont.-based Andrew Peller's core focus is wine production with operations spanning from Canada's west coast to the east coast. The company has wineries in B.C., Ontario, and Nova Scotia. In addition, the company also produces wine based liqueurs, cider, and whisky, amongst other products. APL owns over 100 retail stores in Ontario under the banners: The Wine Shop, Wine Country Vintners and Wine Country Merchants.
APL offers a diverse selection of wines from ultra-premium labels to low cost brands. In the premium and ultra-premium category, brands include Peller Estates, Trius, Wayne Gretzky, Red Rooster, Thirty Bench and Sandhill. In the popular priced category, brands include Copper Moon, Black Cellar, Peller Estates French Cross and Peller Estates Proprietors Reserve. Lastly, in the value priced segment are brands such as Royal, Sommet, Domaine D'Or, and Hochtaler.
On Sept. 11, the company announced plans to purchase three wineries, all located in British Columbia's Okanagan Valley, for a total cost of approximately $95-million. The proposed acquisition is expected to be completed by the end of October. The three wineries will materially contribute to APL's top line. In their most recent fiscal years, these three wineries generated combined total sales of roughly $25-million. These acquisitions will strengthen APL's platform in B.C. and expand its product offerings in the super-premium and ultra-premium categories.
The company's chief financial officer Brian Athaide indicated on the recent conference call that, "In addition to the margin expansion, we believe we will see through increased sales. We also have plans to leverage the strength of our sales and marketing organizations and enhance production and packaging efficiencies across all our Western Canadian operations. While these synergies will take some time to realize, we're confident they will result in solid accretive growth over the next three to five years." He added, "Looking ahead, we are forecasting they will add in the range of $30-million to $35-million across the three (wineries) in annual sales over the next five years."
The company has realized steady revenue growth over the years through a combination of organic (internal) growth and acquisition growth. In fiscal 2017, net sales grew over 2 per cent to a record $342.6-million up from $334.3-million reported in the prior fiscal year. In the previous three fiscal years, net sales were $315.7-million (in 2015), $297.8-million (in 2014), and $289.1-million (in 2013). The company's fiscal year end is March 31.
Furthermore, the company's gross margins expanded sharply last year. In fiscal 2017, gross margins were 38.3 per cent, up from 36.8 per cent reported in the prior year, and returning to its gross margins levels reported several years ago. Back in fiscal 2013, fiscal 2012, and fiscal 2011, gross margins were 38.0 per cent, 38.7 per cent and 38.9 per cent, respectively.
The company continues to expand the Gretzky brand. A few months ago, in June, APL opened the Wayne Gretzky Estate Winery and Craft Distillery in Niagara-on-the-Lake, Ontario. Last October, the company launched Wayne Gretzky No. 99 Red Cask Canadian Whisky. Back in November 2011, the company entered into a strategic alliance with Wayne Gretzky, agreeing to produce and market the Wayne Gretzky Estate Winery brands across the country.
Dividend policy
Management is firmly committed to returning capital to its shareholders, steadily increasing the dividend over the years.
Last month, the board of directros approved a 10 per cent dividend increase, lifting its quarterly dividend to 5 cents per share from 4.5 cents per share, equating to an annualized dividend yield of 1.7 per cent. This was the second dividend hike announced this year. Back in June, management also announced a 10 per cent dividend increase.
Analysts' recommendations
This small-cap consumer staples stock, with a market capitalization of just over $500-million, is only covered by one analyst on the Street – Brian Pow from Acumen Capital. Mr. Pow has a 'buy' recommendation on the stock and a target price of $14.
Revised recommendations
Brian Pow initiated coverage on the company in mid-August. Last week, he increased his target price to $14 from $13.50, after the company announced its agreement to acquire three wineries in B.C.
Financial forecasts
The sole analyst covering this stock is forecasting sales to reach $362-million in fiscal 2018, up from $342.6-million in fiscal 2017, and climb to $390-million in fiscal 2019. He is expecting earnings per share (EPS) to come in at 40 cents in fiscal 2018 and increase to 50 cents per share in fiscal 2019.
On the recent conference call discussing the purchase of the three B.C. wineries, the chief financial officer remarked on future earnings expectations, "We believe the acquisitions will be around 20 cents per Class A share dilutive to earnings in fiscal 2018 and about 15 cents per Class A share diluted in fiscal 2019. This dilution includes one-time noncash cost of goods sold adjustments of approximately $3.5-million in fiscal 2018 and over $7.3-million in fiscal 2019. Fiscal 2018 also includes the one-time transaction and restructuring costs related to the acquisitions of approximately $1.2-million with fiscal 2019 including an additional $300,000. With these behind us, we see the acquisitions as neutral to EPS in fiscal 2020 and begin generating a solid and growing accretive contribution beginning in fiscal 2021."
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of approximately 11 times the 2019 estimate on the Street.
The analyst at Acumen Capital has a target price of $14, implying the share price has 17 per cent upside potential.
Insider transaction activity
The most recent transaction by an insider in the public market occurred in the first quarter. In a relatively small trade, Mark Cosens, who sits on the board of directors, purchased 750 shares at an average price per share of $11.23, lifting his portfolio's holdings to 2,250 shares.
Prior to that, on March 14, five board members each purchased 2,250 shares at an average price per share of $10.62. With this purchase, board member Angus Peller increased his portfolio's position to 15,600 shares. It should be noted that Angus Peller has indirect ownership in an account (Jalger Ltd.), which holds 5,044,108 shares. Director Richard Hossack increased his portfolio's position to 29,250 shares. Board member Perry Miele raised his portfolio's holdings to 15,750 shares. Dino Bianco initiated a portfolio position with this purchase, as did Michelle Mallett-DiEmanuele.
Chart watch
Long-term investors have been rewarded with spectacular returns. The stock price experienced a parabolic move in 2016, soaring over 70 per cent. Consequently, year-to-date, the share price has been rather uneventful, increasing just 2 per cent as the stock price digest its gains from last year.
In terms of key resistance and support levels, the stock price has significant overhead resistance around $12, and after that around $12.70, near its record closing high set in October 2016 (at $12.69). There is downside support around $11, close to both its 50-day moving average (at $11.05) and its 200-day moving average (at $11.03). Failing that, there is support around the $10 level.
The stock can be thinly traded. The three-month daily average trading volume is approximately 32,000 shares.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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