CSW-B Corby Spirt and Wine Limited

[wondering]

Description:

Canadian spirits company, specializing in whiskey, rum, and vodka among other spirits.  They are a Canadian company that has been around forever.  Many of their brands are among the top sellers in Canada.  They also distribute many international brands (ex. Absolut Vodka) from their parent company Pernod Ricard.  There are two type of shares: A shares - voting (not very liquid, majority held by Pernod Ricard), and B shares non-voting.

 

Pros:

- no interest bearing debt on the balance sheet (it has been like that for years)

- great cash flows. Dividend yield 5%. Dividend payout ratio high.  Every few years, it pays a special dividend on top of the regular dividend

- great relationship with the various Cdn liquid control boards which control the sale of spirits in Canada (except for Alberta)

- good widow and orphan stock because of the steady dividend

 

Cons:

- mature market.  Sales don't increase much year to year

- Because the company is so simple to understand, I think most of the time the instrinic value equals the market price.

- probably not a multiple bagger stock

 

Recently, it keeps on hitting 52 weeks lows, 5%+ dividend yield, 16X PE. 

-

[Spekulatius]

Wondering - thanks for brining this company to our attention, I have never heard about them before. Assuming even moderate growth, the stock seems somewhat cheap. Earnings have been flattish over the last few years but cash flows seems to have improved - working capital management? Seem like downside is very limited from current prices.

[Spekulatius]

Bought a few shares today to park some funds. After reading the annual report and seeing how intertwined that business is with Pernod Ricard (46% owner), is there a reason why they don’t take Corby out and streamline their operations that way? Pernod Ricard is richly valued and they are strategic, so it’s surprising to me that this is still a separate company. I think it’s just a matter of time until it is taken out.

 

Dividend yield is ~6% someone gets paid to wait.

[BG2008]

FWIW, I've met with the management team of Corby in Toronto.  They actually bought in a whiskey tasting.  Kind of cool to do so.  My takeaway is that Canadian Whiskey is considered lower quality by the market.  They do not have the same kind of pricing power as some of the other premium brands.  The management team has literally said that if they increase prices, volume will go down.  It's been a couple years and my memory is kind of fuzzy.  But I distinctively remember that their do not have that great of a portfolio and obviously slow growth maturing market.  Seems like it's better to put my money with Ed Breen at DuPont where it trades at about 12x next year FCF due to buybacks etc.  Corby does have a 6% yield. So that helps. 

[mranski]

Definitely a solid dividend and balance sheet with limited downside on pe multiple. So definitely a good defensive stock. They haven’t really been able to grow the business however, for a long time.  And although the tie up with Pernod seemed promising, it doesn’t seemed to have improved growth. They are essentially a distributor for the Pernod brands, with geographical restrictions, and probably dictated terms. The buyout has been obvious for a long time, but maybe Pernod likes the economics as is. I can’t see much of a buyout premium. Corbys had a Canadian whiskey foray into the USA, not sure how that worked out.

[Spekulatius]

Definitely a solid dividend and balance sheet with limited downside on pe multiple. So definitely a good defensive stock. They haven’t really been able to grow the business however, for a long time.  And although the tie up with Pernod seemed promising, it doesn’t seemed to have improved growth. They are essentially a distributor for the Pernod brands, with geographical restrictions, and probably dictated terms. The buyout has been obvious for a long time, but maybe Pernod likes the economics as is. I can’t see much of a buyout premium. Corbys had a Canadian whiskey foray into the USA, not sure how that worked out.

 

Based on my read of the annual report, they are pushing Canadian Whiskey (Wisers) and the Ungava (gin) brand internationally. I think if one of these brands takes off, Pernod Ricard will buy them out in a hurry.

Canadian whiskey may have been under the radar, but it seems to be gaining status, similar to what happened with Irish Whiskey 10 years or so ago. Gin is pretty hot in spirits. Corby seems to be impacted  by weakness in wines, most of which are distributed for PR. Their own brands are actually doing better.

 

I see this is a parking pace for money where I don’t think I can lose all that much (famous last words) and have some income (dividend) and upside if a buyout were to occur (unlikely but possible).

[BG2008]

Definitely a solid dividend and balance sheet with limited downside on pe multiple. So definitely a good defensive stock. They haven’t really been able to grow the business however, for a long time.  And although the tie up with Pernod seemed promising, it doesn’t seemed to have improved growth. They are essentially a distributor for the Pernod brands, with geographical restrictions, and probably dictated terms. The buyout has been obvious for a long time, but maybe Pernod likes the economics as is. I can’t see much of a buyout premium. Corbys had a Canadian whiskey foray into the USA, not sure how that worked out.

 

Based on my read of the annual report, they are pushing Canadian Whiskey (Wisers) and the Ungava (gin) brand internationally. I think if one of these brands takes off, Pernod Ricard will buy them out in a hurry.

Canadian whiskey may have been under the radar, but it seems to be gaining status, similar to what happened with Irish Whiskey 10 years or so ago. Gin is pretty hot in spirits. Corby seems to be impacted  y weakness in w8nes, most of which are distributed for PR. Their own brands are actually doing better.

 

I see this is a parking pace for money where I don’t think I can lose all that much (famous last words) and have some income (dividend) and upside if a buyout were to occur (unlikely but possible).

 

I bought both the Wiser and Ungava gin after my meeting.  I thought it tasted "okay".  Nothing distinctive about it.  They seem to be excited about the Gin.

 

Spek, thoughts on owning DD versus this?  I prefer DD with its higher return on capital and pricing power. 

[Spekulatius]

Definitely a solid dividend and balance sheet with limited downside on pe multiple. So definitely a good defensive stock. They haven’t really been able to grow the business however, for a long time.  And although the tie up with Pernod seemed promising, it doesn’t seemed to have improved growth. They are essentially a distributor for the Pernod brands, with geographical restrictions, and probably dictated terms. The buyout has been obvious for a long time, but maybe Pernod likes the economics as is. I can’t see much of a buyout premium. Corbys had a Canadian whiskey foray into the USA, not sure how that worked out.

 

Based on my read of the annual report, they are pushing Canadian Whiskey (Wisers) and the Ungava (gin) brand internationally. I think if one of these brands takes off, Pernod Ricard will buy them out in a hurry.

Canadian whiskey may have been under the radar, but it seems to be gaining status, similar to what happened with Irish Whiskey 10 years or so ago. Gin is pretty hot in spirits. Corby seems to be impacted  y weakness in w8nes, most of which are distributed for PR. Their own brands are actually doing better.

 

I see this is a parking pace for money where I don’t think I can lose all that much (famous last words) and have some income (dividend) and upside if a buyout were to occur (unlikely but possible).

 

I bought both the Wiser and Ungava gin after my meeting.  I thought it tasted "okay".  Nothing distinctive about it.  They seem to be excited about the Gin.

 

Spek, thoughts on owning DD versus this?  I prefer DD with its higher return on capital and pricing power.

 

DD is an entirely different “bucket” then Corby. I sold most of the DD I own in retirement accounts for a quick gain again, but bought back some CVTA. Both CVTA and DD are similar in they they are still restructuring so the true profitability is somewhat masked and in my opinion unknown. I thin they both will take a while to play out hence my tactical buys and sells.

 

DD has a very nice product portfolio, but it is somewhat one the economically sensitive side impacted by the trade wars. I think it also remains to be seen how much organic growth they can generate. One of my concerns is that Breen relies too much on cost cutting , as alluded before (based my experience with Tyco spinoffs back then).

 

Circling back to Corby, I like the liquor business due to pricing power. I also own a substantial (for me) position in CUERVO.MX as a secular growth play on tequila.

[BG2008]

Definitely a solid dividend and balance sheet with limited downside on pe multiple. So definitely a good defensive stock. They haven’t really been able to grow the business however, for a long time.  And although the tie up with Pernod seemed promising, it doesn’t seemed to have improved growth. They are essentially a distributor for the Pernod brands, with geographical restrictions, and probably dictated terms. The buyout has been obvious for a long time, but maybe Pernod likes the economics as is. I can’t see much of a buyout premium. Corbys had a Canadian whiskey foray into the USA, not sure how that worked out.

 

Based on my read of the annual report, they are pushing Canadian Whiskey (Wisers) and the Ungava (gin) brand internationally. I think if one of these brands takes off, Pernod Ricard will buy them out in a hurry.

Canadian whiskey may have been under the radar, but it seems to be gaining status, similar to what happened with Irish Whiskey 10 years or so ago. Gin is pretty hot in spirits. Corby seems to be impacted  y weakness in w8nes, most of which are distributed for PR. Their own brands are actually doing better.

 

I see this is a parking pace for money where I don’t think I can lose all that much (famous last words) and have some income (dividend) and upside if a buyout were to occur (unlikely but possible).

 

I bought both the Wiser and Ungava gin after my meeting.  I thought it tasted "okay".  Nothing distinctive about it.  They seem to be excited about the Gin.

 

Spek, thoughts on owning DD versus this?  I prefer DD with its higher return on capital and pricing power.

 

DD is an entirely different “bucket” then Corby. I sold most of the DD I own in retirement accounts for a quick gain again, but bought back some CVTA. Both CVTA and DD are similar in they they are still restructuring so the true profitability is somewhat masked and in my opinion unknown. I thin they both will take a while to play out hence my tactical buys and sells.

 

DD has a very nice product portfolio, but it is somewhat one the economically sensitive side impacted by the trade wars. I think it also remains to be seen how much organic growth they can generate. One of my concerns is that Breen relies too much on cost cutting , as alluded before (based my experience with Tyco spinoffs back then).

 

Circling back to Corby, I like the liquor business due to pricing power. I also own a substantial (for me) position in CUERVO.MX as a secular growth play on tequila.

 

Makes sense.  DD reminds of Charter/GLIBA 1-2 years ago when there was a lot of noise associated with the TWC and Bright House acquisition.  You got Malone/Breen, good capital allocation in both, reasonable P/FCF, and if you look out 2-3 years, likely a 9-11x P/FCF at a little over 2x levered.  If they can grow organically a bit from now till then, the P/FCF drops significantly.  I view the trade war as a positive.  I have noticed all specialty chem businesses suffering from volume declines this year.  This is a deep contrast to 2-4% growth in the last few years.  Maybes this portends a recession.  Maybe this is due to the trade war.  But if it comps 2-4% in volume and a 6-7% in EBITDA, I think the stock is potentially a 60-100% upside from here.  If you sit on it, you know that the buybacks are happening at 12x next year.  In a few years, it will trade at 9x P/FCF if it stays stagnant. 

 

The problem with Corby and your comment about pricing power is that the CEO told me in person that their customers are very price sensitive.  A quarter increase in price per liter and you will see volume drop.  Hate to rain on your parade, but it's probably not as economic insensitive as you think.  At 11-12x P/FCF, I maybe interested due to the dividend yield. 

[bizaro86]

FWIW, I've met with the management team of Corby in Toronto.  They actually bought in a whiskey tasting.  Kind of cool to do so.  My takeaway is that Canadian Whiskey is considered lower quality by the market.  They do not have the same kind of pricing power as some of the other premium brands.  The management team has literally said that if they increase prices, volume will go down.  It's been a couple years and my memory is kind of fuzzy.  But I distinctively remember that their do not have that great of a portfolio and obviously slow growth maturing market.  Seems like it's better to put my money with Ed Breen at DuPont where it trades at about 12x next year FCF due to buybacks etc.  Corby does have a 6% yield. So that helps.

 

Lol.

 

I owned this once upon a time for the dividend. My concern at the time was what would happen if Pernod went around them to self-distribute. Seems like you could then have a risk of a take-under.

[Spekulatius]

No recession in the liquor business apparently:

https://corby.ca/en/news/article/?id=137338

Cheers!

 

[Spekulatius]

This sleeper business did pretty good +12% revenue growth and +68% earnings. Dividend is back to 22c/ quarter after they reduced it to 20c:

https://corby.ca/en/news/article/?id=137348

[Cigarbutt]

Some comments on this more than stable long term 'performer'.

-The ownership pattern may change and the eventual outcome is hard to predict.

-Over the long term, it seems that they have tended to distribute more than they could or should. Maybe that will last for a while and they could even issue ultra-low yielding debt to 'fund' more

redistribution.

-Book value does not mean much but 2020 BV is about the same as 15 years ago. Anyways, it helps with reported ROEs.

-i don't think their portfolio of products has strong enduring characteristics and have the impression that their pricing power has decreased over time but booze is booze.

 

Anecdotal stuff

-Yesterday, i was at the liquor store and many of their products still benefit from advantageously positioned displays, to some degree.

-Their new 'Ungava' gin is popular among younger members of my household. Gin used to be perceived as an older people type of drink so maybe Corby is onto something here.

With 'restrictions' in place, young adults in my tribe 'meet' with friends online while having a few drinks. Is that what technological progress is all about? An advantage is that when they have one too many, they can simply take a step to reach their beds.

 

i think their growth potential (Corby) is limited but would be interested if shares get lower and if there is nothing else to drink.

 

[Spekulatius]

^ Cigarbut, thanks for the comments. I really have looked at the very long term fundamentals too much, just at the last few years. it seems that earnings have declined from 2010 to 2015 and then slowly rebounded. Anyone knows what happened?

 

My thesis is that this is a slow growing (growing with the rate of inflation) equity bond that should rerate with lower interest rates. They have some net cash, some of which was spent to pay for her privilege of Pernod&Ricard brand distribution and it yields ~6%. (On my original purchase price, but I also bought some on the VOVID-19 plunge at better prices ). At least on the surface , it seem as stable or a business as it can get.

 

I would think that over the long run PR would buy them out, but this has been contemplated for a long time and hasn’t happened.

 

Edit : I believe what happened is that they sold of brands/business lines and essentially distributed the proceeds as dividends