Marlborough Wine Estates Group Limited Hot Stock

The investment environment recently is not like anything economists and investors have witnessed before. Amidst these uncertainties, stocks from consumer staples sector can offer the stability to the investors’ portfolio. This company has managed the impact of COVID-19 on its business well. The stock of this company has delivered a return of ~25% in the span of previous 6 months while, in the time frame of past 3 months, the stock has increased by ~41.67%.

Marlborough Wine Estates Group Limited (NZX: MWE)

Marlborough Wine Estates Group Limited produces New Zealand’s finest Awatere Valley (Marlborough) Sauvignon Blancs. The company owns numerous vineyards in the highly regarded Marlborough region, from which it produces premium wines. 

Summary:

  • In FY20, revenue increased by ~18.96% YoY and its gross profit rose ~16.85% YoY.
  • Restrictions related to coronavirus negatively impacted the company’s sales in NZ as well as Australia.
  • MWE witnessed consistent business from current distributors in Japan, China, Taiwan as well as Canada.

Over FY15- FY20, the company has grown its revenue to $6.40 million from $1.84 million. During the same period, the gross profit has increased to $2.15 million from $0.26 million. The company registered CAGR of 28.31 per cent over the period of FY15 to FY20 in the top line and during the same time, the company registered CAGR of 52.58 per cent in the gross profit.

Decent Revenue Growth Witnessed

The wine industry in NZ witnessed a challenging 2020 vintage. The pandemic caused considerable logistical challenges. Despite the restrictions, the company witnessed one of the better vintages from its own blocks. There was an increase in yield from 1,860 tonnes in 2019 vintage to 1,911 tonnes this vintage. The company harvested about 330 tonnes of grapes from its contract grape suppliers this vintage, up from 105 tonnes in the 2019 vintage.

For the year ended 30 June 2020, the company reported total sales of $6.402 million, up by ~18.96% Y-o-Y and its profit before tax also increased from a loss of -$502,929 to $17,193. Adjusted EBITDA stood at $897,463, reflecting an improvement from the previous financial year’s figure of $592,684. The company stated that NZ bottled wine sales revenue rose by 91% as compared to the previous financial year.

Financial Statement (Source: Company Reports)

Overview of International Market

For MWE, FY 2020 international market witnessed a robust start, with the company’s first container order being shipped to Australia as well as a new distribution relationship being established in Fiji. However, during March 2020, pandemic impacted the company’s international market development, primarily in Australia as well as Fiji as local lockdowns temporarily reduced tourism as well as consumption of wine in the restaurants.

The company also stated that it would continue to support the distributors and would look to continue the international market development as restrictions with respect to lockdown ease, with the focus towards expansion into the key international markets like UK and the USA. 

Recent Update

The company has appointed Christine Pears to the Board which became effective from 8 October 2020. Christine has leadership experience of more than 20 years in the wine industry.

Songyuan (Benny) Huang has resigned as the director of the company and this became effective from 8 October 2020. Benny has chosen to quit to concentrate on his other business ventures.

Strong 2020 vintage strengthens New Zealand wine industry

According to the 2020 New Zealand Winegrowers Annual Report, the quality of the 2020 vintage is nothing short of exceptional, despite the impact of COVID-19 on vineyard as well as winery processes. The total 2020 harvest indicates the near perfect growing environment experienced in the majority of the country, and a 2% rise in planted area to 39,935 hectares.

The excellent 2020 vintage will thrill consumers all around the world, as New Zealand wine exports are rising. In the year ended 30 June 2020, the New Zealand wine industry exports stood at $1.92 billion, up by 6% Y-o-Y.

Key Data (Source: New Zealand Wine)

Outlook

The company experienced strong growth in FY20, with improvements in various areas of operations of the business despite the significant as well as unique challenges presented by coronavirus. New Zealand market is further expected to improve as channel sales and brand awareness continues to improve in New Zealand.

The company’s New Zealand market is anticipated to grow further as the sales channels as well as brand awareness continues to improve in New Zealand. The company’s international business development was negatively impacted by the pandemic throughout the globe, as several planned marketing programmes as well as international visits by the staff were cancelled.

Key Risks

The company’s activities expose it to various financial risks like market risk, credit risk, liquidity risk as well as agricultural risk. The agricultural activities of the company primarily comprise of the ownership of vineyards to produce grapes that are then sold to both related and non-related parties for the production of wine.

The stock of MWE ended the trading session at NZ$0.250 per share, reflecting a fall of 1.96% on an intraday basis on November 6, 2020.

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