Andrew Peller – Is the wine party over or just starting?

Andrew Peller is a leading producer and marketer of quality wines in Canada. The company owns wineries in British Columbia, Ontario, and Nova Scotia and operates through 101 independent retail stores across Ontario. These stores are company-owned, selling only Peller-branded wine. Andrew Peller’s products are sold predominantly in Canada and the company also earns revenues from export sales to the U.S.

Andrew Peller’s premium portfolio of brands includes Peller Estates, Trius, Thirty Bench, Wayne Gretzky, Sandhill, Red Rooster, Black Hills Estate Winery, Tinhorn Creek Vineyards, Gray Monk Estate Winery, Raven Conspiracy, and Conviction. Its Peller Estates brand is the top‐selling wine in the English Canada wine market.

Some of its key value-priced brands are Hochtaler, Domaine D’Or, Schloss Laderheim, Royal, and Sommet. The company has a wide range of products from high-end premium wine to low-end budget wine.

Andrew Peller has entered the spirits category, through its strategic alliance with Wayne Gretzky. It now produces craft beverage alcohol products, including No Boats on Sunday ciders, Wayne Gretzky No. 99 Red Cask, No. 99 Ice Cask, 99 Proof Canadian Whiskies, and No. 99 Canadian Whisky Cream products.

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Revenue Growth & Market Exposure

As one of Canada’s most respected producers of wines across all key price segments, Andrew Peller produces a wide range of wines and spirits and is known for its signature products like Icewine, Chardonnay, and Riesling as well as premium and ultra-premium red wines.

Currently, Andrew Peller commands over a 10% share of the English Canada wine market. It also offers its customers personal winemaking products through its wholly-owned subsidiary, Global Vintners Inc., which is the recognized leader in personal winemaking products.

With a 50-year history, Andrew Peller has developed a detailed knowledge of the alcoholic beverage industry in Canada. The company’s reputation and quality products differentiate it from its contemporaries. A wide network of company-owned retail stores in Ontario and award-winning estate wineries form a wide moat around the company’s business.

Andrew Peller continues to launch new wine and other craft alcohol brands to take advantage of the increasing wine consumption in Canada. The company also invests in improving the quality of grapes, wines, and spirits, its winemaking, and distillation capabilities. 

Andrew Peller is growing its product portfolio in cider, craft beer, whiskey, and distilled spirits. The beverage alcohol category is deemed essential by the government in the ongoing COVID‐19 pandemic. Most of Andrew Peller’s liquor and retail stores and production facilities remained open during the lockdown. However, visitation, estate winery tourism, and special event businesses remained closed for the period. Both restaurants and estate wineries were open for curbside pickup. 

Andrew Peller experienced increased sales in the last quarter on the back of a resilient trade channel network and from the launch of a new e-commerce portal, www.thewineshops.com. In fact, both revenue and earnings have grown through the pandemic.

However, sales related to hospitality, licensee sales, and duty-free export sales lowered due to COVID-19 closures and travel restrictions. Andrew Peller acquired The Riverbend Inn and Vineyard, in February 2021, containing vineyards of 17 acres and a 21‐ room hotel and restaurant. This acquisition will further add to providing a premium wine tourism experience in the Niagara Region.

Dividends

Andrew Peller has consistently paid dividends every year since 1979. The company last raised its dividend by an impressive 19% in 2019, marking the seventh year of a continuous dividend increase. Andrew Peller has a payout ratio of just 12% with a dividend yield of ~2% currently.

The company has maintained a dividend growth of 9.5% CAGR in the last three years. Andrew Peller has a sound track record of stable growth and strong financial performance. Its earnings have compounded at more than 9% per year over the last five years.

Andrew Peller enters into strategic acquisitions from time to time which further supports its business objectives. It has successfully integrated 17 acquisitions since 1995 with a total investment of more than $200 million. The acquisition of three premium and well-established wineries Black Hills, Tinhorn Creek and Gray Monk Estate back in 2017, has helped Andrew Peller become the largest producer and the market leader of quality VQA wines in Canada.

The integration of these three new wineries is now largely complete and Andrew Peller is seeing significant cost and operating synergies. The company is also successfully expanding into new adjacent categories with Premium Canadian Craft brands including No Boats on Sunday ciders, Wayne Gretzky No. 99 Canadian Whiskies, and No. 99 Rye Lager. 

Andrew Peller has a successful track record of growth and strong operating performance. A continual review of its operations and cost structure should further reduce costs and enhance its production efficiencies. Andrew Peller is eyeing the expansion of its distribution channels and customer base through the introduction of new brands and entry into new markets. The company is also investing significantly in sales and marketing to drive future growth. It is nicely placed to benefit from the favorable dynamics of the Canadian wine market offering a large market for higher-priced premium wine as well.

Andrew Peller (ADW.A) historical yield
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Competition

Andrew Peller operates in a highly competitive industry. The Canadian wine market offers a large market for low-priced imported wines from foreign countries. Both the domestic and international wine industry is consolidating which has resulted in larger competitors for the company. The company competes with both national and international players. A strong product portfolio, a reputation for delivering value, and a loyal customer base are Andrew Peller’s strong competitive advantages.

Bottom Line

Andrew Peller is in a good position to expand into new adjacent categories given its expertise and a large base of loyal customers. Its gross margin should benefit from an increased focus on higher-margin products and efforts to enhance efficiency and reduce costs.

The consumption of alcoholic beverages remains stable in Canada and as one of the largest producers of quality wines in Canada, Andrew Peller stands a good chance to benefit from this growing trend. Given the wine industry’s defensive nature and Andrew Peller’s domestic reach and large product portfolio, the company should continue its dividend-paying streak in the future.

ADW.A vs TSX vs SP500
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Andrew Peller (ADW.A) historical PE
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