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What are we looking for?

Summer is the time for refreshing, cool beverages, many of them from publicly traded Canadian companies. Like other industries, their stock prices have recovered since the lows of last year. With that backdrop, are there firms in this industry presenting investment opportunities?

The screen

We used StockCalc’s screener to select beverage companies listed on the Toronto Stock Exchange and TSX Venture Exchange. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it is undervalued or overvalued compared with its price.

Overview of the techniques used:

  • Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its historical price-to-book ratio.

If we have analyst coverage, we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.

What we found

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from our models (and analyst target data, if used).

How the market sees Canadian-listed beverage stocks 

CompanyTickerMkt. Cap. ($ Mil.)Recent Close ($)StockCalc Val ($)Diff (%)DCF Value ($)Price Comps ($)ABV ($)Analyst Tgt. ($)1Y Rtn. (%)Div. Yld. (%)
Molson Coors CanadaTPX-B-T13,644.461.3066.899.1-26.7747.7178.8672.0024.70.7
Primo Water Corp.PRMW-T3,420.521.7120.10-7.4-12.698.9517.6130.0915.61.4
Lassonde IndustriesLAS-A-T1,210.1176.70210.1018.9288.67228.92256.92207.509.12.0
Corby Spirit and WineCSW-A-T517.018.4519.043.131.0015.1719.3026.5020.94.5
Andrew PellerADW-A-T386.08.289.6816.911.536.9613.6913.50-4.52.9
Waterloo BrewingWBR-T231.86.245.45-12.65.302.653.029.7995.11.8
Big Rock BreweryBR-T41.05.855.14-12.14.7711.235.5110.0037.6n/a
Diamond Estates WinesDWS-X38.60.170.16-3.0-0.250.060.160.223.1n/a
Hill Street BeverageBEER-X14.20.070.070.00.000.060.08n/a-7.1n/a

Source: StockCalc

This industry includes companies that make, sell and distribute beers and ales, distilled liquors and wine, soft drinks, carbonated and spring water and other non-alcoholic beverages. Companies in this category are considered to be more recession-proof and investors will hold them through downturns in the market.

One interesting aspect of this industry: Legal marijuana reportedly is cutting into beer and alcohol sales. That’s led to a number of partnerships, with Constellation Brands Inc.’s 10-per-cent investment into Canopy Growth Corp. making headlines in 2017.

Among the companies on our list, Molson Coors Canada Inc. partnered with Gatineau-based Hexo Corp. in 2018; earlier this year their joint venture, Truss CBD USA, launched Verywell, a CBD sparkling water. Hill Street Beverage Co. Inc. recently announced a partnership with Michigan-based DeHydr8 MI LLC for cannabis products in edibles, infused beverages and other products.

Let’s look further at two companies on the list:

Corby Spirit and Wine Ltd. of Toronto is a leading marketer and distributor of spirits and wines. Either directly or through affiliations with Pernod Ricard SA, it owns or distributes brands such as J.P. Wiser’s, Chivas Regal, Jameson Irish Whiskey and Beefeater Gin. Two of our models, DCF value and ABV, as well as analyst consensus, support a higher price for Corby. Our ABV (the main model for a steady company such as this) is within 5 per cent of the current price. This stock has seen a compound annual growth rate of 7 per cent for the past 10 years and is also held for its 4.5-per-cent dividend.

The aforementioned Hill Street Beverage of Mississauga is an alcohol-free and cannabis-infused products company targeting the more health-conscious and alcohol-free consumer. Small companies such as Hill Street (trailing 12-month revenue of $2-million) have very little Street coverage and traditional models such as DCF will see negative cash flow for a number of years before cash flows will generate a positive valuation. For companies like this our other models – comparables and ABV – provide better investor insight into the company’s valuation, which we see as fairly valued at present.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

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