Australian Vintage Limited

AVG Details

Appointment of CFO:  Australian Vintage Limited (ASX: AVG) is engaged in winemaking, wine marketing and vineyard management. On 15 December 2021, the company appointed Adam Rigano as Chief Financial Officer (CFO).

FY21 Operational and Financial Highlights:

• During FY21, the sales of the company’s pillar brands McGuigan, Tempus Two, Nepenthe and BVWC soared by 12% to $195.1 million and total revenue rose by $6.8 million to $274.0 million.
• Net Profit after tax (NPAT) for the year rose by 79% to $19.6 million, supported by the recent capital spend, investment in its people and the favourable 2020 and 2021 vintages.
• ROCE for the year improved by 70% to 7.5% and recorded Total Shareholder Return (TSR) of 83% in FY21.

Revenue & NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Change in Consumer Sentiments: The company’s business could be impacted by the changing sentiments of consumers and the operational health could be hampered.
• Regulatory Risk: AVG is exposed to a more complex regulatory environment; any failure in compliances could lead the business to fines, penalties etc.

Outlook:

• Looking forward, AVG would continue to leverage the past asset investments and combined with its ongoing investment in the pillar brands and people capability.
• AVH anticipates achieving high single digit ROCE in the medium term. The company had a positive start to FY22 even after allowing for the closure of its 2 Hunter Valley cellar doors due to the NSW lockdown.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of AVG is trading below its 52-week low-high average of $0.627 - $0.922, respectively. The stock has been corrected by ~10.52% and ~8.38% in the past one month and three months, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 uncertainties and high debt to equity ratio, etc. For the purpose of valuation, peers such as United Malt Group Ltd (ASX: UMG), Treasury Wine Estates Ltd (ASX: TWE) and Lark Distilling Co Ltd (ASX: LRK) have been considered. Considering the expected upside in valuation, decent performance in FY21, rising revenue, growing ROCE, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.765, as on 20 December 2021, 10:50 AM (GMT+10), Sydney, Eastern Australia.

AVG Daily Technical Chart, Data Source: REFINITIV

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 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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 unfavourable movement in the stock prices.

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