Australian Vintage Limited

AVG Details

Decent Financials in FY19:Australian Vintage Limited (ASX: AVG) is a winemaking, wine marketing and vineyard management company. The market capitalisation of the company stood at $134.74 million as on 25^th September 2019. The company reported EBITS (Earnings Before Interest, Tax and SGARA) of $21.7 million up by 30%. NPAT and before SGARA increased by 48% to $11.9 million mainly due to the improvement in contribution from UK/Europe segment.

Segmental Highlights:
Australasia/North America: This segment reported an EBIT growth of 7% to $7.9 million. Decent growth in Australia with sales up by 6%, New Zealand up 42% and Asia up 24% contributed to the growth of this segment. While, sales to North America were down by 11% mainly due to lower than expected sales in Canada.

UK/Europe: This segment reported an EBIT growth of 94% to $10.9 million mainly due to the improvement in sales mix, focus on growing independents and the ongoing sales growth of the relatively new generic Shy Pig brand.

Cellar Door: This segment reported an EBIT decline of 39% to $1.0 million mainly due to decreased visitor numbers in the Hunter Valley where two important cellar doors are located.

Australasia/North America Bulk and Processing: In this segment, EBIT improved by $1.8 million due to removal of a significant portion of loss-making bulk wine sales.

Vineyard Segment: EBIT (including SGARA) declined by $6.9 million mainly due to poor 2019 vintage. The frost and the significant heat contributed to the poor 2019 yield.


Segmental Sales (Source: Company Reports)

Capex in Previous Years: In the last 2 years, the Company has invested $35.6 million in many capital projects like $11 million on a new packaging line and various long-term investments in winemaking, plus a premium winery at Buronga winery facility. The return on investment on the new packaging line is currently lower than expected but above the cost of funding. In the future, with increased throughput the expected target of 12% will be met.
Financial Position: The company’s net debt position declined by $4.8 million to $72.4 million and the gearing ratio came in at 24%.The cash flow from operating activities decreasedby $3.1 million to $23.6 million due to the poor 2019 vintage, which made the company to purchase $9.7 million of bulk wine. This purchase of wine was essential to meet future sales forecasts.

Outlook: The company continues to focus on its three key strategies which are to grow export business, increase branded sales and focus on cost control.These three strategies with the focus on growing its three brands, McGuigan, Tempus Two and Nepenthe, have significantly contributed to the growth in the core business.

In 2019, the Company invested $16.2 million on capital projects covering winery and packaging equipment.In the next 12 months, the total capital is expected to drop to $12 million.

Dividends: The company has declared a fully franked final dividend of 2.0 cents per share. This dividend reflects a payout ratio of 70% and is based on an improved operating cash flow and reduced FY20 capital spend.The final dividend will be paid on 8 November 2019 with record date of 18 October 2019 and ex-date of 17 October 2019.

Stock performance:On the stock performance front, it produced returns of 1.05% and -3.03% in the past one month and three months, respectively. Currently, the stock is trading slightly below the average of 52 weeks high and low levels of $0.62 and $0.42, respectively.Hence, in view aforesaid parameters and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.495 per share (up 3.125% on 25 September 2019).

 
AVG Daily Technical Chart (Source: Thomson Reuters)

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