This report is an updated version of the report published on 5^th April 2022 at 08:00 AM GMT+1.

Naked Wines PLC (LON: WINE)

Naked Wines PLC (LON: WINE) is an FTSE AIM UK 50 index listed online wine retailer. The Company ships wine throughout the United Kingdom, United States, and Australia. Moreover, the Company is known as the largest direct-to-consumer wine business worldwide with 947 thousand subscription customers.

The Company will release FY22 results in June 2022.

Growth Prospects

• Sustained Consumer Desire: The Company had shown a robust increase of around 25% in the Active Angel base (subscription customers) to 947,000 members. Thus, it has strengthened the lineup and customer proposition.
• Total Addressable Market (“TAM”): The Company had identified an underpenetrated USD 25 billion of the total addressable market. Moreover, WINE aims to grab maximum opportunities in an underpenetrated total addressable market.
• Increased US Distribution: WINE has increased its US distribution to 43 states and the District of Columbia as it commenced shipments in the state of Alabama.

Key Risks 

• FOMC Meeting Minutes: The Federal Open Market Committee's meeting minutes scheduled to be released on 06 April 2022 will bring more clarity regarding the path for interest rate hikes.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% in February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion of Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of Naked Wines PLC.

Baillie Gifford & Co. is the most significant shareholder as it holds nearly 8.06 million shares as of 31 March 2022.   

H1 FY22 Financial Highlights (for the 26 weeks ending 27 September 2021, as of 18 November 2021)

(Source: Company Filings)

• Top-Line Business: The Company’s top-line revenue grew by around 1% to £159.3 million, driven by strong Repeat Customer sales retention.
• Profitability: On the profitability front, the Company had witnessed a favourable turnaround and reported a profit before tax of £1.3 million versus a loss of £8.9 million in H1 FY21.
• Balance Sheet: The cash balance stood at £57.1 million as of 27 September 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 04 April 2022, WINE’s shares were closed at GBX 384.80, up by around 6.18% against the previous day’s closing price. Stock’s 52-week High and Low were GBX 914.00 and GBX 344.00, respectively.

On a daily chart, the stock price is sustained above the 20-days exponential moving average of GBX 375.54. Hence, there could be an uptick in the stock price in the near term. Moreover, the MACD line has given a bullish crossover against the signal line. Also, the 14-days RSI stood at ~50 levels.

Valuation Methodology: Price/Book Approach (FY22E)

Business Outlook

The Company had decent top-line revenue growth and demonstrated a positive turnaround into profitability during H1 FY22. Moreover, the expansion into Alabama will add to the USD 20 billion total addressable markets in the USA. Meanwhile, the Company had anticipated total revenue ranging from £340 million to £355 million during FY22. The investment in New Customers is expected to be in the range of between £35 million to £45 million during FY22. Overall, the Company remained confident of generating increased shareholders’ returns driven by a loyal customer base with attractive unit economics and recurring revenues.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the decent fundamentals, strong operational progress, robust financial ratios, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Naked Wines PLC at the closing market price of GBX 384.80 (as of 04 April 2022), with lower-double digit upside potential based on 3.11x Price/NTM Book value (approx.) on FY22E book value per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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