Main menu button

Equity research Viva Wine Group: Scalability when the largest grow larger

21 dec 2023

Read the full initiation report on the link below:


Read the Investment highlights on the link below:


As a leading wine supplier to Nordic monopolies, Viva Wine Group has demonstrated its ability to align its product offering with market demand, positioning itself for further growth. Viva’s e-commerce business can regain momentum and lift the group’s growth trajectory. With growth, economies of scale can be realised, leading to increased profitability. We initiate coverage of Viva Wine Group with a fair value per share of SEK 46.3.

Two business models in different types of markets

The entrepreneurial-driven and owner-led Viva Wine Group (Viva, the company, or the group) was founded in 2009. With product development driven by demand, the Nordic segment has grown organically and through acquisitions to become the leading wine supplier to the monopolies in Sweden, Finland, and Norway, with an aggregate market share of approx. 21%. The e-commerce business under Viva eCom strengthens the group’s long-term growth prospects. The e-commerce initiative was initiated in 2019 with the acquisition of Wine in Black and intensified in 2021 with the acquisition of Vicampo. Viva eCom’s primary market is Germany. An expansion has been initiated to neighbouring counties, all lacking a dominant player.

Product development is driven by customers and e-commerce tailwinds

The broad product portfolio has a large share in climate-smart packaging and good sales diversification. Rolling 12 months, as of the end of Q3 2023, the group has reported organic growth of 1.9% in challenging market conditions. That is at an adjusted EBITA margin of 8.2%. The Nordic segment can continue to grow with partner brands and own brands at an above-market pace driven by proven proactive product development. Intensified sustainability requirements from the monopolies are expected to facilitate further growth in the Nordics. Moreover, we expect Viva eCom’s negative development to come to an end. That is in the backdrop of market signals indicating that e-commerce with food and beverage has picked up and turned positive.

Growth and margin expansion motivate upside potential

In 2023, net sales are expected to reach SEK 3,971m, reflecting an organic growth of around 2%, primarily negatively influenced by Viva eCom. However, with a more promising outlook for e-commerce, we anticipate organic growth to surge to 4.3% in 2024. Our estimates indicate an increase in the adjusted EBITA margin from 7.9% in 2023 to 8.6% in 2024. Short-term margin improvement could potentially arise from a strengthened SEK and NOK. Over the following three years, from 2024 to 2026, an annual average growth rate of 4.6% is estimated. Considering scalability and a larger revenue contribution from its own brands, we anticipate an adjusted EBITA margin of 10.8% by 2026.

Combining a DCF model with a multiple valuation, we calculate a fair value of SEK 46.3 per share. That corresponds to an EV/Sales 2024 of 1.1x and EV/EBIT 2024 and 2025 of 18.6x and 13.9x, respectively. The peer group trades at an EV/Sales 2024 of 0.7x and EV/EBIT 2024 of 11.6x. The premium is justified by expected margin expansion.


Disclaimer

Carlsquare AB. www.carlsquare.se, hereafter referred to as Carlsquare, conducts operations in Corporate Finance and Equity Research and thereby publishes information about companies, including analyses. The information has been compiled from sources that Carlsquare considers reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be regarded as a recommendation or invitation to invest in any financial instrument, option or similar. Opinions and conclusions expressed in the analysis are intended solely for the recipient.

The content may not be copied, reproduced, or distributed to any other person without the written consent of Carlsquare. Carlsquare shall not be liable for any direct or indirect damage caused by decisions made based on information contained in this analysis. Investments in financial instruments provide opportunities for capital appreciation and profits. All such investments are also associated with risks. The risks vary between different types of financial instruments and combinations thereof. Historical returns should not be considered as an indication of future returns.

The research is not directed at U.S. Persons (as that term is defined in Regulation S of the United States Securities Act and interpreted in the United States Investment Companies Act 1940) and may not be distributed to such persons. Nor is the analysis aimed at such natural or legal persons where the distribution of the analysis to such persons would involve or entail a risk of violation of Swedish or foreign law or regulations.

The analysis is a so-called commissioned analysis where the analyzed company has signed an agreement with Carlsquare for analysis coverage. The analyses are published continuously during the contract period and against customary fixed remuneration.

Carlsquare may or may not have a financial interest in the subject of this analysis. Carlsquare values ensuring objectivity and independence and has therefore established procedures for managing conflicts of interest.

The analysts Markus Augustsson, Christopher Solbakke and Jia Moberg do not and may not own shares in the analyzed company.

Equity research Viva Wine Group: Scalability when the largest grow larger