Author Topic: WINE - Majestic Wine Plc  (Read 873 times)

bjakes00

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WINE - Majestic Wine Plc
« on: September 05, 2018, 08:23:41 AM »
Company

Majestic Wine is a UK based wine specialist that operates in four segments:
1. Majestic Retail (55% sales / 53% Adj. EBIT) - UK wine retailer focused on customer experience. Transitioning to multi-channel retailer with control of the last mile delivery
2. Naked Wines (33% sales / 34% Adj. EBIT) - Funding platform for independent winemakers, who make exclusive wines at preferential prices. Subscription business model with direct marketing expertise and multi-year customer retention
3. Commercial (9% sales / 9% Adj. EBIT) - On-trade supplier that helps businesses to make their wine lists more profitable by offering national pricing and scale with local delivery and training
4. Lay & Wheeler (3% sales / 4% Adj. EBIT) - A specialist fine wine merchant

Valuation

Market Cap: 290m
Net Debt: 8.4m
EV: c. 300m

EV/TTM EBIT: 16.5x
TTM FCF Yield: 8.6%
2018A ROCE: 12.4%

Thesis

- Company operates in a large, fragmented market with a long runway and currently commands a small share of each market that it operates within (Retail - 10%; Naked - 1%)
- Employs a trial based approach to customer acquisition and has calculated that there is a 4.7x cash-on-cash return (15% IRR) for each 1 spent on customer acquisition
- Customers tend to be sticky given the excellent level of customer service and value proposition
- At their latest investor day, they have reiterated the potential for customer acquisition spend and guided to the fact that EBIT will be depressed over the next 1-2 years as revenues are re-directed to acquiring new customers rather than returned to shareholders
- Business is run by serial entrepreneur Rowan Gormley (founded Virgin Money and Naked Wines). The executives have a large part of their wealth in the business and are choosing to focus on the long-term growth opportunity
- Business has delevered post the Majestic/Naked merger and the balance sheet is in sound condition


whistlerbumps

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Re: WINE - Majestic Wine Plc
« Reply #1 on: September 10, 2018, 12:42:02 PM »
I really like CEO Rowan Gormley.  Anyone interested should look through his presentations and shareholder letters.  I think he is a long-term thinker who is very focused on driving LT shareholder value.

bjakes00

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Re: WINE - Majestic Wine Plc
« Reply #2 on: September 11, 2018, 02:45:15 AM »
Agreed, he seems to be focused on creating value rather than taking rents.

Would be keen to hear thoughts on their current plan. They appear confident that they are onto something with their customer acquisition strategy and the potential returns. If you can get 15% CAGR on customer acquisition and maintain your overheads relatively flat, the economics should take care of themselves.

whistlerbumps

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Re: WINE - Majestic Wine Plc
« Reply #3 on: Today at 12:32:52 PM »
This one seems pretty interesting here.  Naked should generate >200mln of revenues next FY so that is ~1x revenues.  Given strong competitive position, solid retention and proven profitability, that seems like a cheap multiple for a growing online subscription-based retailer.  UK retail environment is obviously terrible but franchise partner program and conceirge seem interesting and Majestic Retail is still growing and profitable.  Good mgmt team here as well with a long-term focus.

Seems like investors got spooked by weaker than expected results in retail and the large increase in spending at Naked which lowered 2019 results.  Given long-tail of Naked repeat customers, the increase in spending should be value accretive over the long-term.