DGL - Delegats Wines

[Ferg]

Delegat Wines released their HY result today:
https://www.nzx.com/announcements/468314
https://www.nzx.com/announcements/468312

I just listened to their investor presentation.  Very happy holder.

The highlights:
 ~ Volumes up 3%
 ~ Sales value at $179.6m for the HY was up 1% on last year
 ~ Sales value was impacted by a combination of competitive pricing action and the USA tariffs
 ~ Operating Gross Profit was 49% of sales, up on last HY of 48% which was helped by the bumper harvest in 2025 {for context FY25 GM was 45.3%}
 ~ Operating NPAT at $29.7m was up on last year's $28.3m
 ~ We are yet to see the impact of reversing the massive harvest provision in 2024 (which impacts reported NPAT, but is irrelevant for operating NPAT)

Full year guidance for operating profit of $50-$55m was re-affirmed.  Given the modest movement in sales away from H1 into H2 due to USA tariff disruptions and the timing of deliveries into the USA, Delegat Wines should deliver on forecast case sales of 3.3m or thereabouts.  Assuming margins and cost savings are maintained, I see Delegat Wines landing at the upper end of that guidance operating NPAT for FY26

$50m operating NPAT will be 49.4c EPS
$55m operating NPAT will be 54.4c SPS
Midpoint of 51.9c puts DGL on a forward P/E ratio of 8.2.

What is pleasing to see is the growth in local sales for NZ & Oz, plus large gains in China as well as the UK & Ireland.  Gains in sales here have offset the decline in USA sales....the market there is still in a state of flux but still remains a priority and focus for DGL.  Interestingly Canada is a big opportunity for DGL given changes to local licencing laws and the collapse of USA wines being imported into Canada.  What is working for Delegat Wines is the premiumisation strategy and their relationship with buyers in the local markets....the super premium category continues to see strength relative to other wine segments and Oyster Bay is a strong brand in that category.

[Mos]

Apparently DGL hosted an investor day on Monday (nothing posted to NZX). Craigs notes from the day are below...

DGL – Rob Morrison is busy fine tuning modelling assumptions for Delegat Wines following Monday's Investor Day in Marlborough. Meanwhile DGL is busy harvesting its Sauvignon Blanc this month for shipment in June given the lack of barrel ageing for the bulk of the wine. The Investor Day impressed from a Supply perspective with DGL now benefitting from a heavy 4-year investment period to expand its production facilities and the purchase more land and vineyards to ensure self-sufficiency as a vertically integrated business. Whilst the supply of 'super-premium' Sav Blanc looks assured DGL provided less insight on the Demand picture which appears to be a key issue for the market currently given a softer US market driven by Tariff issues and a demographic shift that is seeing the younger 'Gen Z' millennial generation drink c20% less wine. DGL's goal is not to make Oyster Bay the #1 Sauvignon Blanc in the US but to cement a top #2-3 position – which is enough to generate leverage with customers and secure shelf space. DGL think they are effectively fully penetrated in the Sauvignon Blanc category in the US now and see Pinot Gris is seen as DGL's next major opportunity. DGL shares are currently trading at a historic low on a PE of c8x and net yield of 4.6%. Leverage looks set to peak in FY26 at $300m (c2.5x) before falling from FY27 as capex falls from $180m over FY23-25 to $90m over FY26-28. CIP currently has an Overweight on the shares.

[Ferg]

Profit upgrade announced this morning with operating NPAT expected to be in the range $60-$62m.  This is 5+ years ahead of my investment case I put forward in post #20.

https://www.nzx.com/announcements/474455

Based on a current SP of $3.64 that is a P/E ratio of about 6, and a gross dividend yield of 7.6%.

[winner (n)]

Profit upgrade announced this morning with operating NPAT expected to be in the range $60-$62m.  This is 5+ years ahead of my investment case I put forward in post #20.

https://www.nzx.com/announcements/474455

Based on a current SP of $3.64 that is a P/E ratio of about 6, and a gross dividend yield of 7.6%.

Good upgrade eh Ferg

PE a bit higher now lol

But still cheap as

[Basil]

Profit upgrade announced this morning with operating NPAT expected to be in the range $60-$62m.  This is 5+ years ahead of my investment case I put forward in post #20.

https://www.nzx.com/announcements/474455

Based on a current SP of $3.64 that is a P/E ratio of about 6, and a gross dividend yield of 7.6%.

Its performance over 5 years has been hidious, was $15 5 years ago. Genuine question mate. Does one good season really make for a trend change ?

[Ferg]

Its performance over 5 years has been hidious, was $15 5 years ago. Genuine question mate. Does one good season really make for a trend change ?

The business performance has been fine; you are referring to the share price.  In light of wider trends in the wine industry globally and the FUBAR that is USA tariffs right now, the business is performing extremely well.

Regarding share price trends.....I am interested in buying a quality company at lower prices, not higher prices.  I think $15 is irrelevant to any investment thesis today.  I didn't own DGL then and I suspect it was hideously overpriced off the back of COVID lockdown enthusiasm for a) Sharesies and b) consuming wine at home.

IMO 5 years is not enough to look through the lumpy COVID period.  Some companies did very well during lockdowns, some not so (e.g. contrast FPH & SAN).  Consequently, reported profits of late for such companies are inversely related to how well they did during lockdowns as they revert  to longer term trends.  This can been seen with multiple companies, so I recommend we look through the COVID period at say 10 years when assessing long term trends for a business.

Assuming Delegat Wines hit the midpoint of $61m operating NPAT, that will be their 2nd highest result ever....the highest being $65m in 2021 right in the middle of the COVID funny business.

[Ferg]

For context to my post.....there is no denying the share price was at $15 in 2021, but with a P/E ratio then in excess of 23 it could be Mr Market had unrealistic growth expectations off the back of extraordinary growth in profits.

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And when I talk about business performance, this is what I am referring to (note FY26 figures are an estimate):

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[Left Field]

Profit upgrade announced this morning with operating NPAT expected to be in the range $60-$62m.  This is 5+ years ahead of my investment case I put forward in post #20.

https://www.nzx.com/announcements/474455

Based on a current SP of $3.64 that is a P/E ratio of about 6, and a gross dividend yield of 7.6%.

Well done Ferg and holders. Nice reward. Onwards & Upwards.

[Greekwatchdog]

For context to my post.....there is no denying the share price was at $15 in 2021, but with a P/E ratio then in excess of 23 it could be Mr Market had unrealistic growth expectations off the back of extraordinary growth in profits.

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And when I talk about business performance, this is what I am referring to (note FY26 figures are an estimate):

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Hey Ferg, most shares and Assets were way over priced back then due to ignorance of Reserve Bank and Govt at that time.

Good on Holders, well deserved win today

[BlackPeter]

Its performance over 5 years has been hidious, was $15 5 years ago. Genuine question mate. Does one good season really make for a trend change ?

Well, as Ferg indicates - $15.5 was probably the market mixing up wine with software.

But yes, the company itself is doing well, and currently looks reasonably priced (PE between 7 and . Not too worried about the harvests, but the larger risks are (longer term) in people reducing their wine cosumption ... and (short term) whatever stupid things the pink baby running the white house might cock up next.

Anyway - I bought a handful back ... some of the wines are not bad at shareholder discount.

[Ferg]

Delegat Wines will release their annual result to the market on Friday August 28th.
https://www.nzx.com/announcements/477017

I expect they will announce their annual dividend at the same time like they did last year.  Assuming it remains unchanged at 20c fully imputed, that gives a gross yield of 6.7% on a purchase price of $4.15.  I expect payment  will be the 2nd week of October and ex-date will be late September.

Their last guidance was operating NPAT of $60-$62m which puts EPS in the range of 59.3c to 61.3c.  At $4.15 that is a P/E ratio of 6.8 to 7.0.

[Ferg]

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.

[HAWKDOG]

Nice update.

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

[Ferg]

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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[Ferg]

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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