Investment Summary
 

(a) The company is shifting to become an online retailer to expand its operations.
(b) The group is looking forward to capitalising on the opportunity present in the US Market.
(c) Significant focus on “Naked” growth opportunity as the division has more than doubled in size since its acquisition and has substantial growth potential.
(d) Experienced management team helped in achieving growth in shorter duration.
 

Business Overview
Naked Wines Plc (LON: WINE), previously known as Majestic Wine Plc, is a United Kingdom-based holding company, which is engaged in the retailing of wines and is a leading wine specialist. The company's operations are differentiated in four separate divisions - Majestic Wine, Naked Wines, Majestic Commercial and Lay & Wheeler - with each targeting different customer segments. Naked Wines funds independent winemakers through crowdfunding and in exchange, customers get exclusive wines, at preferential prices, which are then passed on to the customers. The company is having an employee base of over 150 professionals. The group works with more than 197independent winemakers from 17 countries and has a portfolio of over 1,000 wines, which include red wine, white wine, Dessert & fortified, Sparkling, Rosé wine, Fine wine, Organic wine, Vegetarian wine, Wine Gifts, Spirits and Champagne & fizz. The group’s best-selling wines are Small and Small Marlborough Sauvignon Blanc 2019, Dominic Hentall Terra Calda Primitivo 2018, Cordero Gavi del Comune di Gavi 2018, Embeleso Rioja Crianza 2016 and Benjamin Darnault Picpoul de Pinet 2018.

The current Chairman is John Walden and was appointed in June 2019. Nick Devlin holds the responsibilities of the Chief Executive Officer. James Crawford is the current Chief Financial officer and was appointed in the year 2015.

Key Statistics





Top Shareholders 
 
 

Recent News

On 5^th March 2020,Naked Wines announced the share awards granted as a part Long Term Incentive Plan of the group. The company granted its 23 new employees and to employees who changed their roles as part of LTIP (Long Term Incentive Plan) with 73,779 shares at 7.5 pence/per share.

Board Changes

On 9th January 2020, the company announced that Rowan Gormley, CEO of the company, has retired from the Board. Nick Devlin has been announced as the new Chief Executive of the Group with immediate effect. The company’s Chairman, Greg Hodder, had stepped down from the Board and John Walden would be the new chairman of the company.

Christmas Trading Update (as on 31st December 2019)

The company has reported its Christmas trading performance for the 10-week period ending 31 December 2019. The performance was within the range of expectations. Underlying revenue for the continuing business was up by 11 per cent on the same period last year. Total Gross margin was 1 percentage points higher year on year. It was due to a higher proportion of repeat customer sales. The company expected investment in new customers for the year to be at the lower end of the GBP 20-25 million range.

Financial Highlights – H1 Financial Year 2020 (30th September 2019, GBP, thousand)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, driven by investment in customer acquisition, the company’s revenue from continuing operations surged by 16 per cent on a reported basis and 13 per cent on an underlying basis to GBP 87.5 million as against GBP 75.7 million in H1 FY2019. The revenue from continuing and discontinued operations stood at GBP 233.1 million in H1 FY2020 versus GBP 229.1 million in H1 FY2019, reflecting an increase of 1.7 per cent for the period. In the first half of FY2020, the gross profit from continuing operations stood at GBP 33,487 thousand versus GBP 29,616 thousand in H1 FY2019. Due to an increase in the administrative expenses and distribution costs for the period, the company reported an operating loss from continuing operations of GBP 5,670 thousand in H1 FY2020 versus an operating loss from continuing operations of GBP 4,710 thousand in H1 FY2019. The adjusted LBIT (loss before interest and tax) from continuing and discontinued operations stood at GBP 1.6 million in the first half of the financial year 2020 versus an adjusted EBIT (earnings before interest and tax) of GBP 2.9 million in the first half of the financial year 2019. The adjusted LBT (Loss before tax) from continuing operations was at GBP 4,381 thousand in H1 FY2020 versus an adjusted LBT (loss before tax) from continuing operations of GBP 2,148 thousand in H1 FY2019. The adjusted LBT (Loss before tax) from continuing and discontinued operations was at GBP 3.1 million in H1 FY2020 versus an adjusted PBT (Profit before tax) from continuing and discontinued operations of GBP 2.5 million in H1 FY2019. The LBT (loss before tax) from continuing operations was at GBP 6,211 thousand in H1 FY2020 versus an LBT (loss before tax) from continuing operations of GBP 5,110 thousand in H1 FY2019. The LBT (loss before tax) from continuing and discontinued operations was at GBP 7 million in H1 FY2020 versus an LBT (loss before tax) from continuing and discontinued operations of GBP 0.2 million in H1 FY2019. The LAT (loss after tax) from continuing and discontinued operations was at GBP 6,413 thousand in H1 FY2020 versus a LAT (loss after tax) from continuing and discontinued operations of GBP 96 thousand in H1 FY2019. The company’s basic and diluted loss per share stood at 9 pence in H1 FY2020 versus a basic and diluted loss per share of 0.1 pence in H1 FY2019. The group’s net debt stood at GBP 25.8 million in the first half of the financial year 2020 versus net debt of GBP 20.1 million in the first half of the financial year 2019.

Key Performance Indicators


Revenue

Driven by the acquisition of new customers via tested channels for the period, the company’s revenue surged by 6.3 per cent to GBP 506.1 in the financial year 2019 versus GBP 476.1 million in the financial year 2018.


Underlying revenue growth

The company on an underlying basis reported revenue growth of 5.8 per cent in the financial year 2019. The company is focused on increasing the growth further via investment in acquiring new customers.


Net Debt/adjusted EBITDA

The group’s Net Debt/adjusted EBITDA stood at 0.8x in the financial year 2019. The company is looking forward to reducing it to 0.5x in the coming years.


Team retention

In the financial year 2019, Naked wines’ retention rates stood between 69 per cent to 100 per cent. The company is focused on retaining best people through reward, engagement and empowerment.


Wine Quality

The Buy it Again ratings stood at 92 per cent for Majestic wines and 91 per cent for Naked wines in the financial year 2019 versus 89 per cent and 91 per cent for Majestic wines and Naked wines, respectively. The group is focused on growing its own brand wine Ranges and making it more exclusive to differentiate from competitors’ products.

Financial Ratios

 

The reported gross margin in H1 FY2020 slightly declined by 0.8 per cent to 38.3 per cent as against gross margin of 39.1 per cent reported in last year for the same period. On the liquidity front, Naked Wines Plc’s current ratio stood at 1.45x and was significantly higher than the industry median of 0.85 and was higher than 1.22x reported in the first half of the financial year 2019, reflecting sufficient current assets to pay its short-term obligations. The quick ratio stood at 1.05x and was significantly higher than the industry median of 0.50x. Also, it was higher than 0.30x reported in the first half of the financial year 2019. On leverage front, the asset-equity ratio of the Naked Wines Plc’s was 3.33x and was lower than the industry medians’ asset-equity ratio of 4.09x and was higher than 2.31x reported in the first half of the financial year 2019. The debt-equity ratio of the Naked Wines Plc’s was 0.36x, which was lower as compared to the industry median of 1.05x, reflecting that the company is less leveraged as compared to its peers.

Share Price Performance


Daily Chart as of  March 10^th, 2020, before the market close (Source: Thomson Reuters)

Naked Wines Plcshares were trading at GBX 225.885 at the time of writing before the market close (at 9:24 AM GMT) on 10^th March 2020 and up by 2.44% versus the previous day closing price. Stock's 52 weeks High is GBX 312.70 and Low is GBX 202.50. Stock’s average traded volume for 5 days was 142,716.40; 30 days – 189,500.77 and 90 days – 229,892.19. The average traded volume for 5 days was down by 24.69 per cent as compared to 30 days average traded volume.

From the technical standpoint, its shares were trading above its short-term 30-day and 60-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up. The company’s stock has given investors 7.51 per cent of a positive return in the last three months.

Valuation Methodology

Method 1 – Enterprise Value to Sales (NTM)

 

To compare Naked Wines Plc withits peers, EV/Sales multiple has been used. The peers are McColl's Retail Group Plc (NTM EV/Sales was 0.10), Total Produce Plc (NTM EV/Sales was 0.19), J Sainsbury Plc (NTM EV/Sales was 0.35), Lenta Ltd (NTM EV/Sales was 0.44) and Next Plc (NTM EV/Sales was 2.15). The average of EV/Sales (NTM) of the company’s peers was 0.65x (approx.)

Method 2 – Enterprise Value to EBITDA (NTM)

 

To compare Naked Wines Plc withits peers, EV/EBITDA multiple has been used. The peers are Zur Rose Group AG (NTM EV/EBITDA was 73.09), Boohoo Group Plc (NTM EV/EBITDA was 19.22), Hotel Chocolat Group Plc (NTM EV/EBITDA was 17.68), and ASOS Plc (NTM EV/EBITDA was 11.69). The average of EV/EBITDA (NTM) of the company’s peers was 30.42x (approx.).

Naked Wines Plc V/S FTSE AIM All Share Price – 3 months
 

(Source: Thomson Reuters)

In the last three months, Naked Wines Plc share price has delivered 4.71 per cent return as compared to negative 6.03 per cent return of FTSE AIM All-Share index, which shows that the stock has outperformed the index during the last year.

Growth and Risk Assessment

The company is focused on becoming an online retailer and is looking forward to capitalising huge opportunity in the wine market based out of the US. The company’s UK business remained above the company’s key measures based on a disciplined approach. The experienced management team has made some necessary strategic changes which have resulted in the business growth in short duration. The company also need to raise the appropriate balance of debt and equity to implement its growth plans successfully. Due to a higher level of debt, the company may face a credit crunch in the near future.

Conclusion

Although top-line performance had improved, the bottom-line performance has declined in H1 FY2020, and profitability remained in the negative zone for the period. Underlying revenue for the continuing business was up by 11 per cent on the same period last year (10-week period ending 31 December 2019).

To drive growth through increasing its digital capability and investing in customer relationships, the company began on a transformation plan to broaden its sales footprint outside of the UK. The group now has a tight focus on the significant Naked growth opportunity as the division has more than doubled in size since its acquisition, and has substantial growth potential driven, in particular, by the US business. The company had completed the disposal of Les Celliers de Calais S.A.S and Majestic Wine Warehouses Limited. On the macro front, all the majorindices are currently trading near their 52-week low as a result of coronavirus outbreak and plunge in oil prices, but we believe that global policy makers would make all efforts to introduce comprehensive and coordinated stimulus to cushion the economic impact of a coronavirus outbreak.

Based on the above factors and supported by valuation done using the above two methods, we have given a “Speculative Buy” recommendation at the closing price of GBX 220.50 (as on 9^th March 2020) with lower double-digit upside potential based on 0.65x NTM EV/Sales multiple (approx.) on FY20E sales (approx.) and 30.42x NTM EV/EBITDA multiple (approx.) on FY20E EBITDA (approx.). 
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 10^th March 2020).

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.