INSIGHTSAnalyst research
February 14, 2022

MST Access research update report on DW8 (14/2/2022)

A broader offering under a new name

Following the acquisition of Kaddy and the special resolution at its AGM, Digital Wine Ventures is now DW8 Limited, the same name as its exchange ticker. It is set to again change its name as part of its “Project One" merger integration synergy extraction strategy. It has become a technology company that operates an integrated trading, payment and order fulfilment platform allowing beverage suppliers to connect with buyers, simplify operations and deliver a superior fulfilment experience, driving the digital transformation of the local beverage industry.

 

Explosive growth continues

The compound effect of recent acquisitions has transformed DW8’s operating metrics. Revenues are up over 7x on pcp; and operating cash burn has considerably increased too. There is still more transformation to come next quarter, with Kaddy only contributing3 weeks in Q2FY2022, so Q3FY2022 will have the first full quarter contribution from Kaddy. With the group having now vertically integrated across sales, storage and distribution, we expect its focus to shift to achieving greater scale to become profitable, supported by a rebound in activity post COVID, but further acquisitions to achieve this cannot be ruled out.

 

NDC transaction highlights

•       Binding agreements to effect purchase, sale and long-term lease back relating to NDC was signed on Christmas Eve in Q2FY2022, with settlement expected in Q3FY2022.

•       One-off cash profit of $3.5m net of costs is expected

•       A further $1.1m of previously invested capital also will be released, through the sale and leaseback of the temperature control systems that have been recently installed.

•       Under the new agreement, DW8 has an option to expand the NDC warehouse floor area to cater for future growth requirement, hence strengthen its competitive position within the Australian market.

 

Valuation unchanged

We value DW8 at A$0.08, having rolled forward our discounted free cashflow to equity model by six months, continuing to use a cost of equity of 6.5%, and referencing peer multiples to validate reasonableness. We have also recut our forecasts to reflect the strong sales growth being achieved, gross sales contribution achieved by Kaddy at a lower gross margin, impacting our assumed group gross profit and EBITDA margins. We will again revisit these assumptions at DW8’s1H22 result later this month.

 

Written by:

Glen Wellham 

Senior Research Analyst 

glen.wellham@mstaccess.com.au 

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