Equity research Viva Wine Group, Q1 2024: Solid cost control improves longterm outlook

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In Q1 2024, the Nordic segment continue to outpace the underlying market. The turnaround for Viva eCom is however taking longer than we had expected and this hampered overall growth. Solid cost control solid cost control resulted in profitability exceeding our expectations.

Sales on the soft side, hampered by the e-commerce business

In Q1 2024, Viva Wine Group (Viva or the company) reported net sales of SEK 904m, reflecting an organic growth of 2.8% year-over-year. This was below our expectations of SEK 936m. Incl. the acquisition of Target Wines in February 2024, the largest business segment, the Nordics, experienced a 6.4% revenue growth and a 5.6% increase organically. Alongside increasing volumes, the segment benefited from the timing of Easter, price hikes, and delivery issues affecting a small portion of the competition. Nevertheless, the Nordics grew somewhat slower than we had anticipated. Viva eCom reported net sales of SEK 161m, representing a decline of 11.8% and an organic decline of 9.0%. We had expected net sales of SEK 179m, equivalent to a negative growth of 1.7%. On a positive note, the company sees improving figures for eCom, supported by underlying macro trends. That while the average order value continues to grow.

Profitability above expectation despite soft top-line

Viva reported a negative gross profit growth of 9.0%, amounting to SEK 172m, with a margin of 19.1%. Our expectations were SEK 180m and a margin of 19.3%, respectively. Despite price hikes, the gross margin for the Nordics is still negatively affected by FX. However, an improvement is expected in Q2 2024. Meanwhile, Viva eCom managed to maintain a solid gross margin, just below 40%. The reported adjusted EBITA for the group of SEK 57m, with a margin of 6.3%, exceeded our expectation of SEK 52m and a margin of 5.6%. The difference can be partly attributed to solid cost control and a reduction in average FTE due to the consolidation of platforms in the eCom segment. The reduction is considered sustainable, thus improving the long-term profitability outlook.

Improved gross margin and turnaround for Viva eCom should lift the share

We have slightly revised our net sales estimates downwards for both segments. For 2024, we anticipate total net sales of SEK 4,132m, representing a growth of 3.8% (previously 5.3%). This growth is primarily driven by the Nordics and, to some extent, by Viva eCom, which we expect to deliver growth in H2 2024. Furthermore, we anticipate a sequential improvement in gross margins for the Nordics of approximately 1.5 percentage points in Q2. For 2024, we project an adjusted EBITA of SEK 346m (previously SEK 340m) due to lower OPEX expectations going forward.

Based on the revised estimates, we calculate a fair value of SEK 46.7 per share (45.5) in the base case. The valuation corresponds to an EV/Sales NTM of 1.1x, an EV/EBIT NTM of 17.5x, and 15.1x in 2025. The valuation multiples in the market have come down. The full reference group trades at an EV/Sales NTM of 0.7x and EV/EBIT NTM of 11.8x. The premium is justified by the margin expansion.

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