Yahoo Finance
Filing
2. Management
Filing
Sept 27, 2021
June. 30, 2021 Data
June. 30, 2021 Data
Price: $0.18. Shares: 48m, Cap: $8.5m.
1. Business
(1) History
(1) History
The company was founded by Peter Byrne in 2001 with the purchase of 3 liquor stores in Alberta namely Anderson liquor. In 2008, it had grown to 18 stores. It IPOed through a reverse merger and quickly grew to 26 stores in 2009. Peter took the CEO role while his daughter Allison Byrne was the COO.
It continues to grow the store number to a peak of 47 stores in 2014. Its revenue peaked in 2014 at $56m with around 2.2m in EBITDA. However, real income was just around 500k because of the high-interest expense of 1.1m and close to 500k CapX. By then, it had incurred 11.2m in goodwill from all the acquisitions. It is total debt is around $14m.
In 2015, the Alberta government imposed a 22% increase in liquor tax. Also, the oil & gas industry started to suffer from the lower oil prices. The company closed 3 stores in 2015. Revenue was down over 10% to $50m. It still made a profit of around 500k.
In 2016, It wrote down goodwill of 4.4m. At the same time, Alberta increased the minimum wage to $12.20, which will increase to $13.6 in Oct. 2017 and $15 in 2018. This creates pressure on its operation.
From 2016 to 2018, it reduced store count to 29. However, revenue stayed relatively stable at the $44m level. Mainly because it rebranded some stores to the Great Canadian Liquor(GCL) brand which has a lower margin but higher sales. It incurred close to $3m in real losses in those years.
By end of 2018, it has $8m bank debt plus $7m in convertible debt. The interest payment of $1m became a big burden to the company. In early 2019, Peter stepped down from the CEO role and Allison took replaced him. In July 2019, it converted all $6.85m of 7.5%convertible debt into 180m shares at $0.035/share. This techniquely restructured the company and the debt holder owns over 70% of the company after that.
In 2019, the operation stayed almost the same as in 2018. It started to make a small profit of around $200k because of the reduced interest expense and a close to zero CapX.
In 2020, the company benefited from the pandemic. Same-store sales increased quite a bit while it closed 3 stores to 26 stores at year-end. Revenue increased to $48m while EBITDA is around $2.3m. Real income is close to 2m thanks to the lower 400k interest and almost zero CapX.
For the first 2 quarters in 2021, it generated $22m in revenue vs $23.7m in 2020. It generated $700k in real income vs around $1m in last year.
(2) Major business
1) It has 26 stores mainly in the rural Albert area. They are mainly low-price discount liquor stores. For a typical store, it can generate around $1.5 to $1.8 in annual sales. Most likely it will employ a full-time manager and an hourly employee and a part-time worker.
2) The business is quite seasonal. Usually, the first quarter sale is the lowerest with close to zero in EBITDA while the 2nd is the highest and the 3rd quarter and 4th quarter will be lower than the 2nd quarter.
3) The margin is relatively stable, it is a little bit higher before 2016. Since 2018, it is stable at 22%.
(3) Industry
Alberta has privatized the liquor industry in 1993. Since then there are over 2000 liquor stores across the whole province. Most of the stores are mom-and-pop kinds of stores. It is very easy to enter the business. Before 2017, the business seems pretty easy. Since 2017, the industry has suffered tough competition as the total consumption was down and the cost of operation is up. By end of 2020, there are 1500 retail liquor stores in Alberta.
Sales value of the liquor market in Alberta from 2009/10 to 2019/20(in billion Canadian dollars)
Major player:
Alcanna Inc. (CLIQ.TO): Owns around 200 stores in Alberta(closed 20 in 2020, then another 10 in the first half of 2021). Total sales 620m in 2020. It is obvious that Alcanna's per-store sales are higher(3m vs 1.8m). It seems Alcanna's store is much bigger since its inventory per store is around 420k vs 220k for RUM. The margin of Alcanna is very close to RUM. However, in 2020, Alcanna seems didn't make much much if removing profit from the selling of the discontinued operations. Alcanna also has some cannabis stores which were pinned off in 2020. Its operation is much more complicated than RUM.
Real Canadian Liquorstore: 40 stores in Alberta. Belongs to Loblaw. They seem to be operated very well.
(1) Management
Peter Byrne: Previously he co-founded a pharmacy chain of 7 stores and sold them in 2004.
Alison Radford(Byrne): She was previously working in accounting firms before joining the family business.
(2) Ownership and compensation
Total shares 47.5m. No options.
Peter Byrne( Executive chair): 8.2m shares. 17.2% (175k salary in 2019)
Alison Radford(Byrne)(CEO): 1.6m shares 3.3% (160k salary in 2019)
Frank Coleman(Director): 1m shares, 2.1%
3. Financial data
Notes: SG&A expense
Notes: SG&A expense
Since 2019, the company has adopted the capital leasing account accounting rule. It is SG&A expense has been reduced by $2m annual, but accounted in leasing depreciation and interest expense.
Notes: Debt and cash
(1) As of June 2021, it has $5.9m in debt and the same amount in inventory. It carries an interest of prime+1.5%. Which has been reduced from prime + 2.65% in May 2021. The new annual interest expense should be less than 300k.
(1) As of June 2021, it has $5.9m in debt and the same amount in inventory. It carries an interest of prime+1.5%. Which has been reduced from prime + 2.65% in May 2021. The new annual interest expense should be less than 300k.
Notes: Share information
Share outstanding: 47.5m, no options.
4. Valuation and comments
(1) Last year the company has generated around $2m in real cash. Even based on 2019's data but subtracting the extra $500 interest payment vs now, it still can generate $700k income. Based on the current year running rate, it should be much higher than the $700k level. The current market cap is just $8.5m, the share price is very cheap.
(1) Last year the company has generated around $2m in real cash. Even based on 2019's data but subtracting the extra $500 interest payment vs now, it still can generate $700k income. Based on the current year running rate, it should be much higher than the $700k level. The current market cap is just $8.5m, the share price is very cheap.
(2) The current running rate of SG&A is around $8.5m. Interest expense is around $300k. If based on a 22% margin, it has to generate around $40m in revenue it makes cash even. If it generates $44m in revenue, it can generate around $900k in profit. If it generates $48m in revenue, it can generate $1.8m in profit.
(3) Naturally it should benefit or stay neutral from high inflation if there is any in the future.
(4) The company was over-leveraged in the past which was obviously a mistake. It had almost bankrupted the company. I think the management has learned the lesson. Currently, its debt is around its inventory level and the interest is also getting lower.
5. Risk
(1) After the pandemic, as restaurants are opening, people's shopping habits for liquor might decrease and revert back to the pre-pandemic level.
(1) After the pandemic, as restaurants are opening, people's shopping habits for liquor might decrease and revert back to the pre-pandemic level.
(2) Since 2019, the company's CapX has been almost close to zero vs over $500k before. Don't know whether that is an accounting change or a temporary cut down. If CapX reverts back, it will significantly affect its profit.
(3) The liquor industry in Alberta is very competitive and there is no barrier to entry. Any new store opened nearby will affect its business significantly. However, because of the hardship that the industry experienced during the past several years, it is unlikely that lots of new stores will be open.
6. Conclusion
Overall, although liquor retail is not a great business, the company has done quite well lately. The current price is quite acceptable. However, since there is some uncertainty, shouldn't be heavily invested. May need to watch it for a while.
7.Links
