Virgin Wines deals with potential hangover

The experience of little or no human contact naturally led many people to take refuge in the warm embrace of alcoholic stupor, which is why share prices for online wine retailers have been generally solid. Virgin Wines (VINO) enjoyed a decent lockdown, but the problem now for the company is how translate a burst of initial success into something that resembles a durable long-term business model. Retaining and expanding its customer base will be the immediate challenge.

The rapid expansion in its customer base over the course of the lockdowns made its presence felt in working capital requirements, which rose by £2.2m, or 45 per cent, to fund the growth in volume and to guard against potential supply chain problems. On this point, management has been thinking ahead and took the decision early on this year to stock up and add bonded warehouse space in time for this year’s Christmas party season. Operating expenses were over 30 per cent higher but essentially kept pace with the company’s top-line sales growth. Its operational flexibility was further helped by the open-source supplier model that it uses with its wine producers.

House broker Liberum forecasts EPS for 2022 of 9.4p, giving a PE of 20. That is full-bodied by most standards, though the market tends to view Virgin Wines as an e-commerce business without the baggage of a fixed retail estate to worry about. The ROCE ratio looks interesting at 18 per cent, but we would still remain cautious given that competition is fierce and there is uncertainty over how many of its lockdown customers the company will eventually retain once the attraction of dining out takes hold again. Hold.

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