Equity research Viva Wine Group, Q3 2024: Solid Nordics operations drive margin recovery

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Viva Wine Group took leverage from its strong market position, price adjustments and ability to cater to shifting consumer preferences to again deliver better-than-expected earnings growth in Q3 2024 despite uncertain markets. 

Another solid performance for the Nordics segment in a slow market

Viva Wine Group reported net sales of SEK 998m, corresponding to a 4.6% growth. Our forecast for the quarter was SEK 974m. The Nordics segment increased net sales organically by a solid 8.3% on an underlying market with a negative volume growth of 3.5%, exceeding our expectation of 4%. Sweden was the main positive deviation, likely due to a better price/mix effect than anticipated. In Finland, Viva increased its market share with Alko and made continued headway in the grocery channel, resulting in 11% sales growth. Viva overall expanded its market share in the Nordic monopoly markets y-o-y to 22.2% (20.8), thus largely holding on to the significant share gains demonstrated in recent quarters. Viva is confident of continued growth in Q4 2024. We share this view based on price adjustments and y-o-y market share gains.

Net sales for the Viva eCom segment declined by 8.9%, burdened by a weak German market and a negative currency effect. Our expectation was a negative 3%. Viva sees an uncertain market in Europe in the near term. We note that a main competitor reported stable sales in Q3 – a possible early sign of a bottom. However, we adopt a slightly more cautious view and no longer expect a return to growth in Q4 for the segment.

We expect robust margins also in the coming quarters

Adjusted EBITA was 9% better than we had expected and increased by 27% to SEK 98m (77), corresponding to a margin of 9.8% (8.1%). Thus, the return of profit growth, as demonstrated in the Q2 report, was confirmed. The deviation from our forecast was higher sales in the Nordics and lower Group opex than anticipated. Despite slow sales, Viva eCom’s profitability was better than anticipated, as Viva has successfully implemented new logistics and CRM models and trimmed operating costs in the segment. The gross margin for Viva Wine Group improved markedly by 1.9 percentage points to 20.6%. Our forecast was 20.8%. The company still expects a sequential improvement in the gross margin in Q4 2024, supported by price adjustments in September. It also reiterated guidance of flattish opex y-o-y in Q4. All in all, this points to a strong operating margin also in the final quarter.

Profitability uptick should support premium valuation

We raise our sales and earnings estimates slightly to reflect a continued solid development in the Nordics. We believe the recent quarters support our view of gradual margin improvements into 2025 for the group. Viva eCom is a “dark horse” given, on one hand, the potential for high margins and, on the other, a still sluggish European wine market. We calculate a roughly unchanged fair value at about SEK 51 per share in the base case, somewhat hampered by lower peer multiple valuations compared to our last update

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