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magazineA Majestic summer buying opportunity
A prolonged heatwave has provided BBQ weather and the perfect balmy evening conditions for imbibing Prosecco and chardonnay, weather which should prove beneficial for AIM-quoted stalwart Majestic Wine (WINE:AIM).
Buy ahead of half year results (22 Nov), where forecasts could be upgraded given a trading boost from hotter temperatures and positive progress with international sales and profitable customer acquisition.
Watford-headquartered Majestic is a quality wine specialist with over 1m customers in the UK, USA and Australia. The Majestic Retail arm is the UK’s largest specialist wine retailer, while its Naked Wines operation sees ‘angels’ across the UK, US and Australia crowdfund independent winemakers in exchange for preferential prices on exclusive wines.
Majestic also runs on-trade supplier Majestic Commercial and the fine wines merchant Lay & Wheeler.
GORMLEY UNCORKS PROGRESS
Results for the year ended 2 April (14 Jun) confirmed CEO Rowan Gormley’s transformation programme is delivering results, revealing 63% growth in adjusted pre-tax profit to £17.2m and a 41% hike in the total dividend to 7.2p.
Retail sales edged ahead by 1.9% on flat profits as currency-driven cost inflation was offset by improved cost efficiency, a credible result considering wider high street woes and price competition from supermarkets.
Meanwhile Naked Wines, Majestic’s long-term growth engine, grew sales grew 11.3% to £156.1m with a six-fold rise in adjusted EBIT to £8.7m.
Bears might point to aggressive price competition from supermarkets in the UK market, although bulls will argue Majestic has a significant opportunity to acquire profitable new customers in key markets, with the entrepreneurial Naked Wines accelerating Majestic’s online sales and paring exposure to a tough UK retail market.
Gormley has said he expects the UK market ‘to remain tough, possibly even tougher than last year’, yet with Naked Wines in tow, Majestic has exposure to the USA and Australia and 45% of group sales are already generated online.
PROGRESSIVE PAYOUT
Management intends to continue a progressive dividend in the current financial year.
This is despite the expectation of a fall in profit due to an accelerated investment strategy designed to take advantage of a market opportunity that appears bigger than previously thought.
Some £14m was spent on customer acquisition last year and management intends to spend an additional £5m-to-£8m this year.
Gormley still expects to achieve £500m in sales by 2019 and Majestic’s returns profile on its investment spend is trending up as it optimises its customer acquisition strategies; encouragingly, the same strategies being used successfully for Naked Wines work in the Retail business too.
For the year to March 2019, Shore Capital forecasts lower adjusted pre-tax profit of £14.8m (2018: £17.2m), ahead of a rise to £18.4m and then £21.2m in 2020 and 2021 respectively as Naked Wines delivers higher profits. Shore also forecasts a dividend rise from 7.2p to 7.4p this year, ahead of 7.5p and 8p thereafter. (JC)
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