StockTalk

Quote from: HAWKDOG on Today at 03:50 PMNice update.

In Gisborne, half the vines are getting yanked out.  Something like 650Ha worth

Thanks.

For sure it is hard yakka for growers at the moment.  You can see it with the likes of TVV on the unlisted exchange and the IFRS write-offs grape buyers like DGL have to endure.  We probably haven't seen the last of vine removals.

Foley Wines on the NZX is another winemaker that has a premium strategy and their latest result was pretty good considering their relative size.

The numbers from NZ Stats show bulk wine sellers are doing it tough.....in the year to 30 June 2026 bulk wine exports (being bulk + bladders) measured by $$$ were down -8.8%, whilst bottled wine exports were up +4.9%.  And for the last 6 months bulk wine exports were down 21%..!

A question was asked at the investor conference call about DGL buying distressed growers.....whilst it sounds like a good idea buying at a low multiple at a low point in the earnings cycle, CEO Murray Annabelle said they prefer to focus on their own business, optimise what they already have and continue expanding their global distribution footprint.  That works for me.

great work fergburger.

One last thing to explain is the operating profit they use versus reported profit per IFRS rules.

I have explained this previously whereby IFRS requires Delegat Wines to revalue harvested grapes to match the cost to buy them on the open market.  This is a distraction for Delegat Wines given they are not in the business of selling grapes.  They sell wine.  This adds confusion to their numbers and has no basis in reality for running the business.

To make this adjustment to IFRS profits, DGL book additional cost of sales and carry an inventory provision, which is a deduction from inventory values on the Balance Sheet.  This gets reversed when the particular vintages are sold in later years as a credit to costs of sales.  Normally you would expect the adjustment for new harvests in any one year would offset the reversal of prior year adjustments as they sell.  However, since the price of grapes is extremely low (and has been low), we saw a big adjustment in 2024 and again in 2026.  Previously I posted the 2024 adjustment would reverse.....this has not been the case yet.

In my view Delegat Wines are carrying a harvest provision of around $22m that will be reversed in future.  Following is a summary of adjustments made to their results and a graph which shows operating profit is the more stable measure, while the IFRS profit jumps around.

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2 x large adjustments highlighted in yellow with a corresponding red X on the graph showing the "gap" that is yet to reverse.

Any questions.....just ask.

Here is the monthly closing share price over the last few years compared with some guard rails - the lower bound being a P/E ratio of 8 and an upper P/E ratio of 12.  We can see the share price got way ahead of itself in the period 2020 to 2022 during the COVID lockdowns when asset prices became over-inflated.

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And the dividend yield:

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Going back to the graph showing the derivation of profit being sales vs NPAT %, we can see there was a lump in sales in 2023 and 2024.  We saw similar bumps with local sales of sheds, kitchens, fencing & property improvements etc due to the lack of international travel during COVID lockdowns and disruptions - but the dates for DGL seem to be a bit late for that.  In any case, sales are back on the longer term growth path:

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Here is the progression of the debt to equity ratio.  The equity marches onwards and upwards to the right as more profits are retained, and debts are falling as capex returns to normality:

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As the equity balance builds, it gets harder for DGL to maintain a lofty return on equity.  This suggests they might be better off paying out higher dividends in future.  My calculation uses operating profit divided by last year's closing equity.

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And here are the drivers of the change in share price over the last 10 years.  Demand for Delegat products is growing at 3.7% per year, NPAT as a % of sales has been growing at 1.9% per year, and there have been no new shares issued.  Consequently EPS has grown by 5.6% per year.  Meanwhile investors haven't been as enthusiastic by increasing the P/E ratio 1.5% per year.  In 10 years the share price has grown from $2.10 to $4.55 (although I'm not 100% sure the price was $2.10 ten years ago - the data is sketchy).

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Following are a bunch of graphs based on their latest result, using operating profit.

Earnings per share is expressed in this graph as sales per share and the conversion rate of sales to profits (ie NPAT%):

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Dividends paid in a year (not declared) relative to earnings in that year.  The upcoming dividend has been increased to 22c so it is still a relatively low payout %.

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Cashflows per share.  I include ALL capex to come up with free cash flow.  Note the large capital spend in prior years.  Capex will be around 33c per share in FY27 so we could see additional debt reductions of around $50m in the coming year.

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Nice update.

In Gisborne, half the vines are getting yanked out.  Something like 650Ha worth

Forsyth Barr out with a note this morning raising their price target to $4.25 and projecting fully imputed dividends of 35, 38 and 40 cps for the next 3 years. (Noting the company itself is targeting 42 CPS for FY29. Gosh that's impressive dividend growth.

Trades cum the final divvy of 17 cps so on a theoretical ex divvy price in late Sept, i.e taking off the near term divvy from today's purchase price, ($3.65 - $0.17) = $3.48 it offers prospective gross yields of 14%, 15.2% and 16% for the next 3 years paid quarterly. Also noting the possible capital management initiative they called out for after 1H FY27 results, special divvy or buy-back and also noting there's no debt on their balance sheet and the very strong cash position. (Forsyth Barr forecasting a ~ $25m buy-back over the course of H2 FY27).
https://api.nzx.com/public/announcement/478735/attachment/475687/478735-475687.pdf

SKT calling out dividends of at least 35 CPS for FY27.
Trades cum a final 17 cps fully imputed dividend and I think shareholders can expect another 9 CPS, (new quarterly divvy) before Christmas.
I think these prospective gross yields are a "game-changer" and any self respecting dividend hound that loves divvy feeds would want a piece of this so I started up position today.

Delegat Wines announced their annual results last Friday per here.

TLDR: revenues up, profits up, dividend up, guidance profit up, debts down.....what more can an investor ask for??

Notes from the investor conference call:
  ~ The business is better positioned than it was this time last year
  ~ Delegat Wines is pursuing "disciplined growth"
  ~ Their new varietal into which they have invested lately, Pinot Grigio, is coming on stream and fitting nicely into the existing distribution network
  ~ China sales are up 68% on a very small base, and Oyster Bay is the #1 NZ wine brand measured by case sales
  ~ USA continues to be the primary focus
  ~ Currently DGL have "touched 3-4m consumers" in the USA out of a market of 50m premium wine consumers

Financial highlights

~ Case sales at 3.32m were up +4.1% on last years 3.19m
  ~ USA/Canada up +2.8% (1.55m cases)
  ~ UK/Ireland/Europe up +1.9% (1.03m cases)
  ~ NZ/Oz/Asia up +10.4% (741k cases)

~ Revenues at $364m up +4.1% on last year
  ~ Average revenue per case was almost identical to last year due to:
    ~ Favourable sales mix and FX rates of +$3m were offset by:
    ~ higher tariffs and lower pricing in some markets of ($3m)

~ Operating profit* at $61.5m was up +20% or +$10.4m on last year's $51.1m due to:
  ~ Higher sales +$14.5m
  ~ Lower COGS +$4.4m
  ~ Higher GP of +$18.9m was offset by:
    ~ Higher sales & marketing costs -$2.9m
    ~ Administration, governance & finance costs -$0.9m
    ~ Higher tax expense of -$4.7m
  ~ Operating profit impact +$10.4m

~ Investment metrics: 
  ~ EPS of 60.8c versus today's share price of $4.55 has a backward P/E ratio of 7.5
  ~ Dividend increased to 22c fully imputed (last year 20c)
  ~ Payout of 22c versus EPS of 60.8c is 36%
  ~ Gross dividend yield is currently 6.7%

~ Cashflow & debts
  ~ Operating cash flow was ($110.5m - $9.6m) $100.9m or 99.8c per share
  ~ Capex of $22m (last year $44m)
  ~ Debt repayments of $58m (last year $31m)
  ~ Interest bearing debt to equity is 0.47:1.00
  ~ Net debt to equity ratio of 0.45:1.00
   
~ Guidance
  ~ Case sales for next year are forecast to be 3.4m cases (2-3% growth)
  ~ NPAT for FY27 is forecast to be in the range of $62-$66m
  ~ Taking the midpoint of $64m is EPS of 63.3c (forward P/E ratio is 7.2)
  ~ Capex guidance of $34m means they could repay another $50m in debt in FY27
  ~ Note: the start of FY27 has benefitted from the heat waves in the UK, and the CEO stated they want to "under promise and over deliver" {music to my ears!}

~ USA Tariff Refund
  ~ There is a contingent asset of $16m of USA tariff refunds that have not been included in the FY26 numbers or the FY27 guidance.
  ~ This $16m will be recognised if and/or when it is banked and is a one-off upside of 15.8c per share.
  ~ This was the result of a High Court ruling that deemed the initial tariffs were illegal.

~ Barossa Valley write-down
  ~ One thing that was surprising was the write down in the value of Barossa Valley Estate of $8.7m.
  ~ This was excluded from operating profits.
  ~ It is non-cash and does not impact any funding covenants or ratios.
  ~ Given the write-down was against assets instead of goodwill, it could be reversed in future under the right conditions.
  ~ This is a one-off and unlikely to repeat
  ~ The Directors state "The Board remains confident in the strength of the Group's core business, the quality of its brands and assets, and its long-term growth prospects."
  ~ The write off was based on a theoretical exercise of looking out at 7 years of discounted cashflows for Barossa Valley and comparing that value to the book value of their assets and writing off the difference
  ~ The directors call this being "prudent".

My notes:
A couple of things stand out for me:
 1) the resilience of case sales shows the premiumisation strategy is working in an overall declining wine market.  As I touched on earlier, different segments within the wine market are behaving differently.
 2) the lower cost of sales per case is noticeable (higher sales but lower COGS).  I asked a question during the investor conference call and was assured this number would not be bouncing around too much this year.  This is despite the lower harvest in 2026 vs 2025.  The inventory on hand has a mix of margins which will insulate FY27 from wild swings in values.  Also, the cost and volume of grapes is just one input of many in inventory valuation.....this tells me there is good cost control in areas such as the vineyard operations and winemaking etc.  I heard an anecdote today the winemaking process in Hawkes Bay is highly automated to ensure consistency of inputs (it is more of a science that an art).  This results in a high consistency of output which protects the brand.

All in all very happy holder.  Graphs to follow.

Quote from: Soolaimon on Today at 11:12 AMShare split comming ?

I suggested that to the board last year.