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Majestic Wine stockpiles booze for Brexit

The wine merchant is spending big on growing its Naked Wines business
November 22, 2018

On the one hand, Majestic Wine (WINE) is doing exactly what it said it would: investing heavily in expanding its Naked Wines business, particularly in the US; spending more on marketing – both print and digital – and hiring more staff to deliver those campaigns. The bad news is that adjusted operating profits fell back 60 per cent to £2.9m at the half-year stage as a result.

IC TIP: Sell at 315p

For now, the decision to invest £7.9m to acquire new customers seems to be working. Sales at Naked Wines accelerated by 14 per cent to £75.7m, while broader retail revenues mustered a 1.9 per cent improvement to £123m. That includes the extensive UK retail arm, which the group says delivered “credible performance” despite a “very challenging” market. Bosses also said they planned to add between £5m and £8m of excess inventory before the March year-end, to adequately prepare for the UK’s exit from the European Union (EU). According to the Wine and Spirit Trade Association, 55 per cent of wine consumed in the UK is imported from the EU.

Analysts at Liberum have cut adjusted operating profit forecasts by 25 to 30 per cent across FY2019 to FY2021, equating to EPS of 12p for the year ending March 2019, rising to 22.6p in FY2020.

MAJESTIC WINE (WINE)   
ORD PRICE:315pMARKET VALUE:£ 227m
TOUCH:315-316p12-MONTH HIGH:495pLOW: 311p
DIVIDEND YIELD:2.3%PE RATIO:38
NET ASSET VALUE:167p*NET DEBT:17%
Half-year to 1 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20172173.12.42.00
2018229-0.2-0.12.00
% change+5---
Ex-div:29 Nov   
Payment:21 Dec   
*Includes intangible assets of £46.8m or 65p a share