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

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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.

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