Statistics Canada recently released March 2018 retail numbers. Sales at beer, wine, and liquor stores were up 3% year over year. Investors should be watching alcohol sales closely ahead of the legalization of recreational cannabis. In a May piece, I’d discussed how the new recreational cannabis market had the potential to negatively impact alcohol sales.
This theory should not drive investors away from the growing wine market. Changing demographics have been a big factor in determining the rise and fall of different beverages. Beer, for example, has seen its market share drop over the last decade in the United States and Canada. This industry has historically marketed to white men, the primary consumers of the beverage. According to a report from Berenberg Research, white men are the only subgroup of Generation Z who prefer beer over other types of alcohol
Wine, on the other hand, has experienced a huge upswing. This trend is not just present in North America, but also in huge overseas markets. By far the most encouraging is the consumption trend in China. China’s wine sales are expected to surpass France and the United Kingdom by 2020 – reaching $21.7 billion – just behind the United States. China is also projected to become the largest non-sparkling wine market in the world, with an estimated increase of 79.5% of cases exported into 2020.
The Canadian Vintners Association (CVA) and its partners released the results of a research study on the Canadian wine and grape industry back in 2017. The report revealed that the economic impact of the Canadian wine industry is up 33% to $9 billion over the period 2011-2015. The provinces of Ontario, British Columbia, Quebec, and Nova Scotia demonstrated the most robust growth.
The fallout from the G7 meeting in Quebec City has cast a shadow over the Canadian economy. Investors still have many great options with many sectors in the Canadian economy posting solid growth. The wine industry is one such option.
Andrew Peller Ltd. (TSX: ADW.A) is a Grimsby-based wine producing company. Shares of Andrew Peller climbed 1.11% on June 8. The stock is up 16.6% in 2018 and 66% year over year. The company released its fiscal 2018 fourth-quarter results on June 6.
Sales at Andrew Peller were up 6.2% from fiscal 2017 Q4 with 3.7% organic growth. Growth in sales was due to the introduction of new products and product categories, price increases, and three winery acquisitions in late 2017. Adjusted EBITDA rose 23.7% to $57.2 million compared to $46.2 million in the prior year.
The company saw net earnings increase to $30.1 million, or $0.71 per Class A share in comparison to $26.4 million or $0.64 per Class A share in fiscal 2017 Q4. The annual dividend on Class A shares was increased to $0.205, thereby representing a 13.9% year-over-year jump.
Andrew Peller is an attractive option for TFSA investors, offering up top shelf capital growth and a solid dividend. The steady growth of the wine market relative to other sectors of the alcohol beverage industry should motivate investors to bet on the stock for the long haul.
