Naked Wines PLC

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.

The company will announce its FY22 results in June 2022.

Investment Rationale for Valuation – Speculative Buy at GBX 353.20

• Performance Update: The Group has delivered decent financial performance during FY22. Group sales reflected an increase of 5% y-o-y, on a constant currency basis. When compared to FY20, Group sales increased by 77% in FY22, on a constant currency basis.
• Strong Inventory: The company has reported year-end inventory of around £143 million during FY22 end, up by £66 million on FY21.
• Customers: The company enjoys a strong customer base with repeat customer sales increasing by 13% in FY22 on the prior year, on a constant currency basis.
• Technical Indicator: The price of the stock is hovering near the lower Bollinger band with a 14-day RSI level of ~43.57.

Key Risks

• Retention Risk: The Group is faced with the risk of retention of its customers. Hence, it must look for ways to improve customer experience and maintain a varied product range.
• Inflation Risk: The current macro scenario has been very volatile with inflation being recorded at 7% in March 2022. This, coupled with hike in interest rate has put the economy under pressure to perform in the current fiscal.  

Financial Highlights (for the half year ended 27 September 2021, as of 18 November 2021)

(Source: Company Website)

• Sales: The company delivered resilient performance during H1FY22 with sales of £159.3 million, compared to £157.1 million in H1FY21.
• Gross Profit: Gross Profit grew by 8% to £66.6 million in H1FY22, driven by a stronger margin performance of 42%.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (FY23E)

Conclusion

The company’s unique business model places it well to cater to the growing demand for wine to its consumers at affordable range.  

The stock made a 52-week high and low of GBX 895.00 and GBX 323.41, respectively.

Based on the impressive performance, unique business model, decent balance sheet 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 353.20 (as on 06 May 2022) with lower double-digit upside potential based on 2.76x Price/NTM Book Value Per Share (approx.) on FY23E book value per share (approx.).

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.

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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 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 unfavorable movement in the stock prices.

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