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Barrels of wine in the cellar of Peller Estates in Niagara-On-The-Lake. (Glenn Lowson/The Globe and Mail)
Barrels of wine in the cellar of Peller Estates in Niagara-On-The-Lake. (Glenn Lowson/The Globe and Mail)

Schizas' Mailbag

Ontario winery may be ripe for an acquisition Add to ...

Hi Lou,

I’ve been following Andrew Peller for some time, as I’m interested in investing in a smaller company. I’d love to get your opinion.

Thanks,

Benno

Hey Benno,

Thanks for the assignment. This will be the second time that I explore the opportunities associated with Andrew Peller Ltd.

The first time was on Jan. 29, 2014, when the shares were trading for $13.62 and the yield on the dividend was 2.94 per cent. Pat wanted me to take a look under the hood and report on my observations. The research conducted at the time identified that the stock was trading in a tight range with support at $13.50 and resistance at $14.00. It was noted that a considerable base had been building since June of 2013 which is a call for greater vigilance as base building can give rise to further gains. Finally, it was mentioned that the due diligence process surfaced comments suggesting a $20.00 share price in the event of a takeover bid. Keep in mind that comments regarding a potential acquisition are speculative at best.

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Another analysis of the charts will help identify what has transpired in the last two months and how you might best proceed.

The three-year chart identifies that since late January the stock has been testing support along the 200-day moving average and lowering support to $13.30 from $13.50. What is also apparent is that the shares are thinly traded with thirty day average volume of 5,657. Under these conditions if you want to build a position you would be best served by picking away at the asks.

The six-month chart provides a close-up of the repeated tests of support along the 200-day moving average and the lowering of support to $13.30. I wouldn’t say that it is cause for great concern -- only a slight change in the trend. The current yield on the dividend is 2.96 per cent, just a small increase over the last two months. The company is scheduled to report fourth-quarter results in June, which is the next flex point for the stock.

You mentioned being interested in buying a small company and Peller, with a market capitalization of $206.09-million, certainly qualifies. Just as an interesting aside it should be mentioned that Forty Creek Distillery Ltd. was recently acquired by Groupo Campari for $186-million. Not to suggest that lightening will strike twice but it does indicate that valuable assets are always in play.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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