The report on Andrew Peller is updated and rated Weak Sell / Hold at $4.57. (Friday’s closing price). (It closed today at $4.40)
This has turned out to be a low return business in terms of its accounting profit for the past few years and the share price has done very poorly.
It is possible that things will improve but in the long run its unlikely to be a high return business.
You might think that a long-established wine producer would be quite a profitable business so it’s useful to look at some of the reasons why its returns are low.
Lack of brand loyalty is a big problem for wine producers. The typical customer looks for whatever brand is on sale. And customers can easily change brands with every purchase. Andrew Peller has a number of higher priced brands (Wayne Gretzky, Sandhill, Tinhorn, Gray Monk and others) but their biggest seller is Peller Family which they bottle from imported bulk wine. The Canadian producers face higher costs that many European producers and so it’s very hard to compete.
Another issue that wine producers face is that it is a capital intensive industry. Vineyards tie up a lot of money. Andrew Peller’s lands may be worth far more than book value which is great in theory but if the land is never going to be sold then investors can’t realise the higher value.
I own some shares and will keep them in the hope of a better price in the next year or two but my thinking is that this will never be a high return business due to the lack of a lot of brand loyalty and the competition from imported wine.