Equity research Viva Wine Group, Q4 2023: Improved growth should strengthen margins

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Despite challenging markets, Viva Wine Group demonstrated resilience in the Nordics by surpassing our expectations in terms of both volume and revenue growth. However, profitability fell short of our projections. With a burden from currency effects, we anticipate gross margins will improve in Q2. Following estimates revisions, we calculate a fair value per share of SEK 45.5 (46.2).

Gaining market shares in a tough market

In Q4 2023, Viva Wine Group (Viva or the company) disclosed net sales of SEK 1,098m, representing robust organic growth of 4.4%. That exceeded our expectations of SEK 1,075m. Notably, the largest segment,

The Nordics, achieved a year-on-year sales volume increase of 5.3%, counteracting the downward trend observed in monopoly markets, where total volumes decreased by 2.0%. Furthermore, net sales rose organically by 6.6% to SEK 892m, slightly surpassing our projections. Apart from increased volumes, net sales growth was partially driven by price adjustments, with further increases anticipated in the near term.

Conversely, Viva eCom recorded net sales of SEK 205m, a negative organic growth rate of minus 3.3%. Weak consumer sentiment and spending in the core market, Germany, continue to pose challenges for Viva eCom. However, expansion into other geographical markets in recent times has yielded solid growth.

Soft on profitability, but the proposed dividend implies confidence

In Q4 2023, gross profit declined by 10% year-on-year to SEK 211m, equivalent to a gross margin of 19.2%, slightly below our expectation of 19.5%. Adjusted EBITA reached SEK 70m, corresponding to a negative growth of 29% and a margin of 6.3%. The adjusted EBITA was affected by one-off costs related to the acquisition agenda and restructuring, totalling SEK 6m. Excluding the one-off costs, operating expenses were still slightly higher than anticipated, leading to softer profitability compared to our estimate for EBITA of SEK 88m.

For the full year 2023, earnings per share (EPS) stood at 1.19, falling short of our expectation of SEK 1.60. Despite this decrease in EPS, the board of directors has proposed an unchanged dividend of SEK 1.55 per share. That reflects confidence in the company’s financial position and future development in 2024.

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

We have made slight upward adjustments to our sales estimates. For the year 2024, we anticipate total net sales of SEK 4,193m, representing a growth of 5.4% (4.3%). 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 an improvement in gross margins in Q2 2024 due to a strengthened SEK and NOK. For 2024, we project an adjusted EBITA of SEK 340m, approx. 3% lower than previously forecasted.

Based on the revised estimates, we have calculated a fair value of SEK 45.5 per share (46.2) in the base case. The valuation corresponds to an EV/Sales NTM of 1.1x, an EV/EBIT NTM of 19.0x, and 15.9x in 2025. The full reference group trades at an EV/Sales NTM of 0.7x and EV/EBIT NTM of 15.1x. The premium is justified by expected margin expansion

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