DGL - Delegats Wines

[Ferg]

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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[Ferg]

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.

[Fiordland Moose]

great work fergburger.

[Ferg]

Nice 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.