Digitising the Australian Wine Market
Digital Wine Ventures is the holding company for Wine Depot, a cloud-based technology platform that offers wine& beverage producers, distributors and importers access to an integrated sales, logistics and finance solution designed to make their supply chain simpler, faster and more cost effective.
DW8 offers investors a unique opportunity to profit from the transition to online of wine wholesaling and retailing. Its Wine Depot business, once it reaches scale, should deliver high returns on capital due to the lack of inventory required in its marketplace and finance offering, coupled with a competitive moat delivered through its logistics offering, and potentially a relative cost of capital advantage over venture capital funded peers due to its ASX listing.
The company’s scale continues to rapidly multiply with its acquisitions of Parton Wine Group and Wine Delivery Australia, and as it integrates these businesses, the operating leverage of these acquisitions should begin to show. The first benefit of the Wine Delivery Australia acquisition has been the introduction of another 186 suppliers to the wholesale marketplace launched in May, and a further 225 suppliers are added from Parton Wine Group, with further benefits set to follow in coming months, as consumer sales channels go live.
Catalysts for DW8 include:
• its partnership with Vivino which goes live this month, and should lead to consumer sales in addition to its existing wholesale offering.
• Increasing online shopping, following the jump driven by the COVID-19 pandemic, with COVID19 lockdowns encouraging stockpiling.
• Normalisation of wine purchasing behaviour following pandemic panic buying distorting comparatives.
• Disruption across the sectors it operates in, with wineries under financial pressure due to poor crops, an expected return to surplus inventory after Chinese exports market collapsed due to ongoing trade war tariffs and the demerger of Endeavour Drinks from Woolworths.
We value DW8 at A$0.15 per share using a DCF on free cash flow to equity. At the current share price, DW8 is trading on the following FY23 multiples: 3.5x price to revenue, 51.8x EV/EBITDA and 5.4xprice to book. Full details are within.
Senior Research Analyst