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Ontario winery may be ripe for an acquisition

Barrels of wine in the cellar of Peller Estates in Niagara-On-The-Lake.

Glenn Lowson/The Globe and Mail

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.


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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.

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.

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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!

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