Harvesting the rewards from FY21
Digital Wine Ventures’ result for atransformational FY21 was broadly in line with our expectations, with revenue atad weaker perhaps due to lockdowns in NSW creating some modest weakness in thelast couple of weeks of the financial year. The result displayed good cost managementcoming inside our estimates for a number of items, with the exception of share-basedremuneration which was higher, leading to a fractionally larger than expectedloss.
All eyes on 1Q22 cashflows
There was a lack of forward-lookingcommentary contained in the annual report, and no result presentation.Furthermore, DW8 are moving to quarterly rather than monthly updates, which mayreduce newsflow. As such, there is no new forward looking information promptingus to change our forecasts; although we do introduce our FY24 forecasts for thefirst time.
FY22 should benefit from:
• its partnership with Vivino which goeslive this month, and should lead to consumer sales in addition to its existingwholesale offering.
• Increasing online shopping, followingthe jump driven by the COVID-19 pandemic, with COVID19 lockdowns encouragingstockpiling.
• Normalisation of wine purchasingbehaviour following pandemic panic buying distorting comparatives.
• Disruption across the sectors itoperates in, with wineries under financial pressure due to poor crops, anexpected return to surplus inventory after Chinese exports market collapsed dueto ongoing trade war tariffs and the demerger of Endeavour Drinks fromWoolworths.
Earnings and valuation changes
We make relatively few changes to ourmodel, reflecting the slightly different starting position for FY22 rather thanany meaningful assumption changes. We change our EPS estimates: FY22: 19%,FY23: 103%. While these changes may appear large, they are based upon very smalldenominators, such that movements are less than 0.1cps. We value DW8 at A$0.15(unchanged) using a discounted free cashflow to equity model with a cost ofequity of 6.5%, referencing peer multiples to validate reasonableness. Fulldetails are within.
Senior Research Analyst