INSIGHTSAnalyst research
November 1, 2021

MST Access research update report on DW8 (01/11/21)

More than meets the eye

Extensive adjustments are required to interpret DW8’s quarterly cashflows. Its recent capital raise and acquisitions of Kaddy and Parton Wine Group (PWG) are not fully reflected in its quarterly cashflows. We believe that DW8 has a substantially longer cash runway of potentially 5.2 quarters, rather than the 2.6 quarters reported in its Appendix4C once these adjustments are made.

 

The transformation continues

By adding Kaddy, DW8:

• becomes an alcoholic beverage powerhouse, and should gain both revenue (cross-sell) and cost (admin, marketing and distribution logistics) synergies.

• has saved itself substantial capital costs building out its own Wine Depot Marketplace

• can generate substantial marketplace revenue synergies given the lack of product, supplier, and customer overlap, allowing for increased cross-sell, as well as gaining logistics revenues for Kaddy transactions.

The company could surprise to the upside on revenues for the December quarter given traditional December quarter seasonality and a post-lockdown demand surge, combined with a full quarter contribution from PWG and partial contribution from Kaddy. Synergies and the stronger revenues should support narrowing losses next quarter.

 

Kaddy transaction highlights

• We calculate that DW8 is paying the equivalent of $33.9m for Kaddy, split 20% in cash (raised through its placement) and 80% in 484.85m shares issued to Kaddy shareholders (at the placement price of 5.6cps).

• No financials other than GMV and revenue were provided; most of the purchase price is likely intangibles.

• DW8 adds another extremely impressive director to its already impressive board.

• Integration seems relatively straight-forward given it consists of combining the two relatively small Sydney based marketplace teams together.

 

Earnings and valuation changes

We cut our EPS estimates: FY22: -30%,FY23: -187%, FY24: -46%. We value DW8 at A$0.09 (was 15cps) using a DCF with a cost of equity of 6.5%, referencing peer multiples for reasonableness. Full details are within.

 

Written by:

Glen Wellham 

Senior Research Analyst 

glen.wellham@mstaccess.com.au 

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