WEEKLY STOCK COMMENT: DELEGAT GROUP
Peter Ball, 24 May 2018
Delegat Group (DGL) is New Zealand’s third largest wine maker and is focussed on producing branded, super-premium wines from New Zealand’s leading wine regions, which it primarily markets offshore. Around 60% of the group’s output is Sauvignon Blanc, with the balance being Chardonnay, Merlot and Pinot Noir. DGL’s flagship brand is Oyster Bay.
In recent years DGL has invested significantly in the necessary infrastructure to facilitate a stepchange in the scale of its business. Access to additional grape supplies has been secured, processing capacity has been increased and modernised, international sales and marketing functions have been established and the key Oyster Bay brand has received substantial support. The group is well placed to leverage the investment made to date, as it drives sales into key international markets, benefitting from the ongoing popularity of distinctive, high-quality, super premium New Zealand wine styles.
In 2013, DGL acquired the assets of Australian Winemaker Barossa Valley Estate for A$24.7m. These include a modern 5,000 tonne winery and a 41 hectare vineyard on 80 hectares of land situated in the heart of the Barossa Valley along with assigned grape grower contracts. Having invested in sales and distribution the establishment of Oyster Bay as a leading super premium brand in key markets for New Zealand wine, we view the acquisition of Barossa Valley Estate as a logical way to leverage that investment and access incremental growth.
DGL has recently invested heavily in its business ahead of the growth opportunities it sees in the coming years. Central to DGL’s growth plans is further penetration of the North American market and the US in particular. The company expects its North American growth plans to be supported by several factors including a lower per capita wine consumption (10 litres in the US vs 20 in New Zealand), and the stronger than market growth of the super premium category, as well as Sauvignon Blanc.
DGL has well established brands and a clear strategy to grow global sales, with the US a key market. The company is also exiting a phase of significant capital expenditure and recent results have been good. Overall, DGL remains well positioned for growth over the coming years.
Key downside risks to DGL include; 1) adverse foreign currency movements, 2) international expansion setbacks, and 3) agricultural related disruptions.