Andrew Peller

I am reviewing this stock (TSX-ADW.A) today as I read a positive review on this stock, which suggested that it was a good buy. I am always on the look out for good stocks to buy, so I did a spreadsheet on this stock. First, I will talk about what the positive review said and then what my concerns are. Perhaps, the other first thing to mention is that this stock is on Mike Higgs’ list at www.dividendgrowth.org/Report.htm. This is the only list it is on.

In the positive review, it was said that the market they are in, the Canadian Wine market, is expanding. It was also said that their profit margins are expanding. Certainly, the operational profit margin (OPM) at 3.7% for 2008 is better than the 2% of 2007. However, the OPM for 2008 is less than the 5 year average of 4.3%. It was said that the debt to equity ratio was improving. I look at the Asset to Book Value and this ratio is 2.53 is better than the 5 year average of 2.24.

The review mentions raising revenue, net income, increasing dividends and lower P/E. It also mentions that the stock is trading close to its Book Value. All the above items are true. Also, this stock is mentioned favorably by the Investment Reporter.

However, what bothers me about this stock is the lack of any increase in its Operational Cash Flow. Unless this cash flow is improved, I do not see how the dividends can increase much in the future. It is not just that 2008 was a bad year for Cash Flow and so the growth in Cash Flow is negative. I have looked at the Cash Flow going back to 1996 and it has its ups and downs, but that is all. There is no overall improvement in it. The Book Value has increased over the last 5 to 10 years by about 6%. This is not bad, but it is not great either.

Andrew Peller Limited (the “Company”) is a leading producer and marketer of quality wines in Canada. With wineries in British Columbia, Ontario and Nova Scotia, the Company markets wines produced from grapes grown in Ontario’s Niagara Peninsula, British Columbia’s Okanagan and Similkameen Valleys and vineyards around the world. As a result of the acquisition of Cascadia Brands Inc., the Company also markets craft beer under the Granville Island brand. The Company produces and markets consumer-made wine kit products through Winexpert and Vineco International Products. The Company’s products are sold predominantly in Canada. Its web site is www.andrewpeller.com. See my spreadsheet on this company at www.spbrunner.com/stocks/adw.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets.