By: Philip MacKellar

Published: July 28, 2026

Sometimes it can take a long time for the market to recognize fundamental changes to a business. Take Corby Spirit and Wine Ltd., a TSX-listed beverage company that manufactures, markets and imports spirits, wines and ready-to-drink cocktails.

Here at Contra the Heard, we first acquired Corby in 2021 and our average purchase price is $14.82. It was bought, at least in part, to lower the portfolio’s volatility, improve income generation and provide stability amid market uncertainty. Since 2021, it has provided solid dividends with low beta, but the other part of the thesis, betting on higher valuations, has not played out.

Part of the corporation’s lacklustre valuation performance may have to do with the acquisition of Ace Beverage Group in June, 2023. The transaction was transformative, fundamentally altered the organization’s brand assortment and primed it for growth.

However, to swallow Ace Beverage, the corporation had to increase leverage, endure a multiyear integration process and pay up. When the deal was announced, Corby had a price-to-sales ratio of 2.4 and an enterprise value/sales ratio of 2.2. By contrast, Ace was acquired at 2.6 on a price-to-sales basis, and 2.8 on an enterprise value/sales basis.

Roughly a year after the M&A, we wrote about it here at The Globe and Mail. At the time, the company was facing significant investor skepticism, and for good reason.

On the one hand, the enterprise had increased its market share across all its operating segments, expanded its operations geographically, and grown revenues more than 40 per cent one year into the merger.

On the other hand, earnings per share were flat with no EPS accretion, margins had fallen, and debt remained persistently high. The debt-to-EBITDA ratio stood at an uncomfortably high 2.1 times, versus expectations of 1.8 times, one year out. As a result, many valuation metrics were at decade-lows, excluding the pandemic sell-off in early 2020.

Though we understood why the market was skeptical, we thought investors were being overly pessimistic. Moreover, we argued that if Corby kept growing its top-line and bottom-line expansion transpired, it would look very cheap, which should power the stock higher.

Fast forward to the present and the purchase of Ace Beverage Group has paid off. Market share and sales growth have continued, margins have started to improve and debt is coming down, yet the valuations remain low.

In the latest quarter, for example, revenues came in at $58.3-million, up 21.5 per cent year-over-year. Sales of domestic case goods jumped 35 per cent to $48.2-million, driven by ready-to-drink strength in Western Canada and Ontario. Net earnings nearly doubled to $7.9-million, and the net margin expanded to roughly 13.6 per cent from 8.4 per cent.

The dividend inched higher, while the payout ratio fell, too. The distribution was up 4.3 per cent from a year ago, and 14.3 per cent since the Ace Beverage merger announcement. Over the past year, the payout has fallen from 162 per cent to 86.2 per cent.

It is worth noting that some of the quarterly sales strength was a matter of timing rather than pure demand. LCBO shipments were pulled forward ahead of that organization’s enterprise resource planning system upgrade, effectively borrowing volume from the quarter that follows. The performance was also driven by continued gains in market share, helped in part by the removal of U.S.-made products from Canadian shelves.

During the quarter, Corby’s sales in the spirits category were flat in a market that declined 4.2 per cent. Revenue from ready-to-drink brands grew 22.4 per cent, versus 9.7 per cent overall in the segment, and wine rose 12 per cent against an industry-wide drop of 0.4 per cent. Not only are the gains noteworthy, but on the latest conference call in May, the executive team was keen to point out that Corby has outpaced the broader spirits market for 14 consecutive quarters.

Corby’s net debt to adjusted EBITDA ended the quarter at 1.4 times, an improvement from 1.6 times at this point last year, or 2.1 times recorded at the time of our last write-up in 2024. Cash on hand, however, remains razor-thin, partly because of the cash management pool arrangement with parent company Pernod Ricard.

The C-suite forecast a softer current quarter as LCBO ordering normalizes post-ERP, and the underlying decline in the spirits market persists. Over the longer term, the executive team sounds optimistic. The main risks worth bearing in mind are the minuscule cash position, the tepid near-term guidance tied to LCBO disruption, and more competition from American brands if (or when) future trade agreements with the United States are finalized.

Risks aside, the rationale for owning Corby remains strong and we consider it a buy. Corby successfully integrated Ace Beverage and deleveraged post acquisition. It is navigating changing consumer preferences toward no- or low-alcohol options well, and it is increasing its market share, sales and margin profile simultaneously. Despite these positives, the stock is lacklustre and the valuations are low. As we wait for the market to recognize the improving fundamentals, we will sit back and collect the 6-per-cent dividend.