Equity research Viva Wine Group: Profitability uptick ahead of expectations

Impressive share gains in the monopoly markets and stable eCom sales

Top-line growth was faster than anticipated across the board, with organic growth for the group at 6.6 per cent. Net sales at SEK 1,114m (1,047) were four per cent above our forecast, mainly explained by more substantial market share gains than we had expected in the Nordics. Viva Wine Group’s product offering, and line extensions have solid traction in a challenging market. Volume increased by 5.1 per cent, while the addressable market in Nordics declined 6.6 per cent in Q2, and the market share expanded to 22.9 (20.3) per cent. For the eCom segment, organic growth was 0.1% – a possible indication of a trend shift following a long period of declines. Our expectation was negative 8%. However, Viva management signalled a downbeat start to Q3 for the eCom segment, citing continued fragile consumer sentiment on, e.g., the German market and, hence, a bumpy road to positive growth.  Still, we believe good Q2 sales and the company outlook of a strong finish to 2024 support our expectations of similar growth (~five per cent) in the second half of the year as in the first half for the group overall.

Return to strong EBITA growth

Adjusted EBITA was a highlight of the quarter, 25 per cent above our expectations, as profit growth returned with a vengeance (+38 per cent) for the first time in two years. EBITA margin came in at 9.6 (7.4) per cent, only slightly below the lower bar of Viva’s financial target of 10-12 per cent. Price increases helped push the gross margin higher by 0.8 percentage points to 20.4%. Our forecast was 19.7%. The Nordics was the main driver as the gross margin rebounded two percentage points compared to the previous quarter, mainly due to the price increases. Similar to the last quarter, OPEX also declined slightly more than expected, showcasing solid cost control. The company still expects a gradual improvement in the gross margin for the Nordics in H2 2024, supported by further expected price adjustments in September.

We raise estimates on good sales momentum and margin expansion

We raise our sales estimates somewhat by one per cent primarily due to a better-than-expected development in the Nordics. We expect good volumes and price increases in the Nordics to drive margin gains in the coming quarters. Mainly due to raised gross margin assumptions, we increase our adj EBITA estimates by 9-12 per cent for 2024E to 2026E. Based on the revised estimates and other model adjustments, we raise the fair value by ~10 per cent to SEK 51.4 per share (46.7) in the base case. The valuation corresponds to an EV/Sales NTM of 1.2x, an EV/EBIT NTM of 16.5x, and 15.3x in 2025. The full reference group trades at an EV/Sales NTM of 0.7x and EV/EBIT NTM of 12.6x. We believe the margin expansion justifies a premium.

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