New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Delegat Group<br>1H21 Result&nbsp;— Hitting all the Right Notes</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Delegat&nbsp;(DGL) delivered another period of robust earnings growth, ahead of expectations, underpinned by strong sales growth and margin expansion.&nbsp;DGL reported 1H21 operating NPAT of NZ$43m, up +25% on the prior year, and lifted full year guidance to NZ$67m. DGL&nbsp;continues to demonstrate its ability to drive earnings growth, with further opportunity as it penetrates further into the North American market. Trading on a 12 month forward PE multiple of 22x, we&nbsp; view valuation as broadly fair but would see any price weakness as creating attractive entry points. NEUTRAL.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/190/669/original/image_81010981031614211295650.png?1614211298" class="editor-image img-responsive" data-smartkarma-image-id="190669"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_-5961458924014635812iwrmo3-2-2-2-2-2">
<ul>
<li><strong>Earnings</strong>:&nbsp;We lift our FY21E operating NPAT forecast +6% to NZ$68m. We make limited net changes to our medium-term forecasts.</li>
<li><strong>Target price</strong>:&nbsp;We lift our target price +7% to NZ$16.20 on the back of earnings changes and higher peer multiples.</li>
</ul>
</div>
<div>
<h3>Result highlights</h3>
</div>
<div id="m_-5961458924014635812ipcq2-2-2-2-2-2">
<ul>
<li><strong>1H21 case sales increased +7%&nbsp;</strong>—&nbsp;DGL continues to perform well in its target growth market of North America (up +17%), with&nbsp;&nbsp;strong case sales growth against a backdrop of benign market growth for imported wine. The UK/Europe market also experienced solid growth (up +12%), as DGL continues to benefit from growth in the convenience market.
<ul>
<li>Average realised price increased +2%, with favourable country/product mix offsetting foreign exchange headwinds.</li>
</ul>
</li>
<li><strong>1H21 EBIT margin 37%, up +300bps on prior comparable period</strong> —&nbsp;Margin uplift was driven by 1) improvements in the sales mix, and 2) lower operating expenses as a result of border closures and limited in-store promotional activity.</li>
<li><strong>Balance sheet healthy</strong> —&nbsp;1H21 net debt of NZ$254m was down -2% on the prior period. DGL is in a period of catch up&nbsp;capex, with projects delayed due to&nbsp;COVID-19 restrictions, however, strong forecast cash flows are expected to cover the uplift.&nbsp;&nbsp;
<ul>
<li>1H21&nbsp;capex&nbsp;was NZ$37m (FY21 guidance NZ$52m).&nbsp;Capex&nbsp;is targeted towards further winery development and additional land acquisition, predominantly in&nbsp;Hawkes&nbsp;Bay, with sales forecasts backed by its current land bank.</li>
</ul>
</li>
</ul>
</div>
<div>
<h3>Increased guidance on back of strong operating result</h3>
</div>
<div id="m_-5961458924014635812idl1k-2-2-2-2-2">
<p>DGL lifted its FY21&nbsp;case sales target +1% to +3% growth, and increased Operating NPAT guidance to NZ$67m from NZ$60m–NZ$65m. Whilst we expect growth to slow in the second half (from lower case sales growth and higher expenses), we view guidance as conservative as is typical ahead of the key harvest period. Over the medium-term we continue to see robust earnings growth, with strong margin recovery in FY21. Case sales growth forecasts are underpinned by&nbsp;DGL's&nbsp;current land bank.</p>
</div>
<div>
<h3>Early harvest indications</h3>
</div>
<div id="m_-5961458924014635812ik5ne9-2-2-2-2-2">
<p>DGL is entering the important harvest period. Early indications suggest vintage 2021 may be slightly softer than the prior year, and as such we have factored in an increase our COGS/case assumption from FY22. We expect to see a harvest update in May 2021.</p>
</div>
<div>
<div>
<div>
<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
</div>
</div>
</div>

Delegat Group 1H21 Result&nbsp;— Hitting all the Right Notes

NEUTRAL
Delegat&nbsp;(DGL) delivered another period of robust earnings growth, ahead of expectations, underpinned by strong sales growth and margin expansion.&nbsp;DGL reported 1H21 operating NPAT of NZ$43m, up +25% on the prior year, and lifted full year guidance to NZ$67m. DGL&nbsp;continues to demonstrate its ability to drive earnings growth, with further opportunity as it penetrates further into the North American market. Trading on a 12 month forward PE multiple of 22x, we&nbsp; view valuation as broadly fair but would see any price weakness as creating attractive entry points. NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;We lift our FY21E operating NPAT forecast +6% to NZ$68m. We make limited net changes to our medium-term forecasts.
Target price:&nbsp;We lift our target price +7% to NZ$16.20 on the back of earnings changes and higher peer multiples.



Result highlights



1H21 case sales increased +7%&nbsp;—&nbsp;DGL continues to perform well in its target growth market of North America (up +17%), with&nbsp;&nbsp;strong case sales growth against a backdrop of benign market growth for imported wine. The UK/Europe market also experienced solid growth (up +12%), as DGL continues to benefit from growth in the convenience market.

Average realised price increased +2%, with favourable country/product mix offsetting foreign exchange headwinds.


1H21 EBIT margin 37%, up +300bps on prior comparable period —&nbsp;Margin uplift was driven by 1) improvements in the sales mix, and 2) lower operating expenses as a result of border closures and limited in-store promotional activity.
Balance sheet healthy —&nbsp;1H21 net debt of NZ$254m was down -2% on the prior period. DGL is in a period of catch up&nbsp;capex, with projects delayed due to&nbsp;COVID-19 restrictions, however, strong forecast cash flows are expected to cover the uplift.&nbsp;&nbsp;

1H21&nbsp;capex&nbsp;was NZ$37m (FY21 guidance NZ$52m).&nbsp;Capex&nbsp;is targeted towards further winery development and additional land acquisition, predominantly in&nbsp;Hawkes&nbsp;Bay, with sales forecasts backed by its current land bank.





Increased guidance on back of strong operating result


DGL lifted its FY21&nbsp;case sales target +1% to +3% growth, and increased Operating NPAT guidance to NZ$67m from NZ$60m–NZ$65m. Whilst we expect growth to slow in the second half (from lower case sales growth and higher expenses), we view guidance as conservative as is typical ahead of the key harvest period. Over the medium-term we continue to see robust earnings growth, with strong margin recovery in FY21. Case sales growth forecasts are underpinned by&nbsp;DGL's&nbsp;current land bank.


Early harvest indications


DGL is entering the important harvest period. Early indications suggest vintage 2021 may be slightly softer than the prior year, and as such we have factored in an increase our COGS/case assumption from FY22. We expect to see a harvest update in May 2021.




Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




Delegat Group: 1H21 Result — Hitting All the Right Notes

<h2>Delegat Group<br>1H21 Preview&nbsp;— Checking the Notes</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Delegat (DGL) will release its 1H21 result on&nbsp; Wednesday, 24 February 2021 — we expect modest earnings growth, with gross margin uplift as DGL cycles the softer 2019 vintage. We look for market performance and outlook comments on result day, with the US being a key market of interest. We expect to see some disruption to channel exposure, with DGL's boost from a lift in off-premise wine sales more than offsetting weakness in on-premise consumption, which DGL is less exposed to. DGL's current FY21E operating NPAT guidance range is NZ$60m to NZ$65m. We expect this range to narrow towards the top end.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/190/289/original/blobid2.png?1614038611" class="editor-image img-responsive" data-smartkarma-image-id="190289"></figure>
<div>
<h3>Key issues to consider at&nbsp;DGL's&nbsp;1H21 result</h3>
</div>
<div id="m_-4418980330570417888iwrmo3">
<ul>
<li><strong>Market dynamics</strong>&nbsp;—&nbsp;Having cycled a large customer win in the UK, performance in that market will be of interest. DGL predominantly&nbsp;sells through the off-premise channel, which has experienced a boost through COVID-19, with the company likely&nbsp;benefitting&nbsp;from this tailwind.&nbsp; Performance in key growth market North America will be a focus area for investors. Market anecdotes have been supportive of continued growth and recognition for New&nbsp;Zealand&nbsp; wine.</li>
<li><strong>Margin expansion</strong> —&nbsp;We expect to see further margin expansion in 1H21, with&nbsp;DGL cycling&nbsp;a weaker 2019 vintage and as COVID-19 related disruption limits&nbsp;promotional spend (e.g. in-store&nbsp;tastings).&nbsp;DGL's&nbsp;2020 harvest was +7% ahead of the prior year period, which is supportive of lower costs of goods sold per case, driving higher gross margin.</li>
<li><strong>Vintage 2021</strong> —&nbsp;Anecdotes suggest harvest volumes are likely to be soft, which may weigh on FY22E forecasts. Smaller vintages impact volume and reduce margin (fixed growing costs spread across lower volume).&nbsp;</li>
<li><strong>Capex&nbsp;catch up</strong>&nbsp;—&nbsp;We expect&nbsp;capex&nbsp;to be elevated in the period, following COVID-19 related delays in the prior six month period. FY21E&nbsp;capex&nbsp;guidance is NZ$52m. Short-term volume guidance is supported by current inventories, however, medium-term growth is linked to winery development and longer-term growth&nbsp;requires further land acquisition.</li>
<li><strong>Managing Director&nbsp;</strong>—&nbsp;DGL's&nbsp;Managing Director, John Freeman, recently announced his resignation effective late March. We look for details on the replacement process.</li>
</ul>
</div>
<div>
<div>
<div>
<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
</div>
</div>
</div>

Delegat Group 1H21 Preview&nbsp;— Checking the Notes

NEUTRAL
Delegat (DGL) will release its 1H21 result on&nbsp; Wednesday, 24 February 2021 — we expect modest earnings growth, with gross margin uplift as DGL cycles the softer 2019 vintage. We look for market performance and outlook comments on result day, with the US being a key market of interest. We expect to see some disruption to channel exposure, with DGL's boost from a lift in off-premise wine sales more than offsetting weakness in on-premise consumption, which DGL is less exposed to. DGL's current FY21E operating NPAT guidance range is NZ$60m to NZ$65m. We expect this range to narrow towards the top end.


Key issues to consider at&nbsp;DGL's&nbsp;1H21 result



Market dynamics&nbsp;—&nbsp;Having cycled a large customer win in the UK, performance in that market will be of interest. DGL predominantly&nbsp;sells through the off-premise channel, which has experienced a boost through COVID-19, with the company likely&nbsp;benefitting&nbsp;from this tailwind.&nbsp; Performance in key growth market North America will be a focus area for investors. Market anecdotes have been supportive of continued growth and recognition for New&nbsp;Zealand&nbsp; wine.
Margin expansion —&nbsp;We expect to see further margin expansion in 1H21, with&nbsp;DGL cycling&nbsp;a weaker 2019 vintage and as COVID-19 related disruption limits&nbsp;promotional spend (e.g. in-store&nbsp;tastings).&nbsp;DGL's&nbsp;2020 harvest was +7% ahead of the prior year period, which is supportive of lower costs of goods sold per case, driving higher gross margin.
Vintage 2021 —&nbsp;Anecdotes suggest harvest volumes are likely to be soft, which may weigh on FY22E forecasts. Smaller vintages impact volume and reduce margin (fixed growing costs spread across lower volume).&nbsp;
Capex&nbsp;catch up&nbsp;—&nbsp;We expect&nbsp;capex&nbsp;to be elevated in the period, following COVID-19 related delays in the prior six month period. FY21E&nbsp;capex&nbsp;guidance is NZ$52m. Short-term volume guidance is supported by current inventories, however, medium-term growth is linked to winery development and longer-term growth&nbsp;requires further land acquisition.
Managing Director&nbsp;—&nbsp;DGL's&nbsp;Managing Director, John Freeman, recently announced his resignation effective late March. We look for details on the replacement process.





Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




Delegat Group: 1H21 Preview — Checking the Notes

<h2>Delegat Group<br>FY20 — Continue to Cellar</h2>
<div></div>
<p><strong>NEUTRAL</strong></p>
<p>Delegat (DGL) reported a strong FY20 result backed by volume growth and margin improvements. DGL issued first time FY21 operating NPAT guidance range of NZ$60m to NZ$65m, which we view as conservative and therefore expect it to deliver at the top of the range (Forsyth Barr NZ$64.6m). DGL is a quality company with a leading brand, growth opportunities, and a track record of delivering. Trading at a 12 month forward PE ratio of 21x, DGL trades broadly in line with peers and our view of fair value. We would view any weakness as creating attractive entry points. We reinstate coverage from our Research Insights series with a NEUTRAL rating and an NZ$15.20 target price.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/155/988/original/image_26701035141598833144113.png?1598833146" class="editor-image img-responsive" data-smartkarma-image-id="155988"></figure>
<div>
<h3>FY20 result backed by continued volume growth</h3>
</div>
<div id="m_-9034680239208857522icqlv">
<p>Global case sales increased +9% in FY20, underpinned by growth into the UK (case sales up +23%) which benefitted from the annualisation of a distribution listing signed in the prior comparable period. DGL continues to perform well in its target growth market of North America ( up +8%), with a good case sales growth against a backdrop of benign market growth. New Zealand was one of few import regions to experience growth in the market. Average realised price increased +1% with foreign exchange tailwinds offsetting a negative country/varietal price mix impact.</p>
</div>
<div>
<h3>Margin expansion, 2020 harvest supports further improvement</h3>
</div>
<div id="m_-9034680239208857522ijloc">
<p>DGL experienced margin expansion, supported by strong volumes and a reduction in marketing spend. COVID-19 disruption contributed to lower marketing spend with more limited promotional spend (e.g. no in-store tastings), which we expect to normalise in part in the coming period. DGL's 2020 harvest was +7% ahead of the prior year period, which is supportive of lower costs of goods sold per case, driving higher gross margin.</p>
</div>
<div>
<h3>Wide guidance range a function of heightened uncertainty</h3>
</div>
<div id="m_-9034680239208857522ik5z1">
<p>DGL updated capex guidance, signalling FY21 spend of NZ$52m. Whilst up on our expectations it is largely a function of timing, with FY20 capex lower than forecast. Capex is targeted towards further winery development and additional land acquisition, predominantly in Hawkes Bay​​​, with sales forecasts backed by its current land bank. Case sales growth is expected to moderate in FY21 (up +2%), picking up into FY22 and FY23 (up +7% in each).​​ DGL's wide earnings guidance range is illustrative of economic uncertainty, however, we view its retail presence, distribution footprint and well established brand as offering more resilient qualities than other beverage companies. As such, we expect FY21 operating NPAT of NZ$64.6m, towards the top end of the guidance range.</p>
</div>
<div>
<div>
<div>
<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
</div>
</div>
</div>

Delegat Group FY20 — Continue to Cellar

NEUTRAL
Delegat (DGL) reported a strong FY20 result backed by volume growth and margin improvements. DGL issued first time FY21 operating NPAT guidance range of NZ$60m to NZ$65m, which we view as conservative and therefore expect it to deliver at the top of the range (Forsyth Barr NZ$64.6m). DGL is a quality company with a leading brand, growth opportunities, and a track record of delivering. Trading at a 12 month forward PE ratio of 21x, DGL trades broadly in line with peers and our view of fair value. We would view any weakness as creating attractive entry points. We reinstate coverage from our Research Insights series with a NEUTRAL rating and an NZ$15.20 target price.


FY20 result backed by continued volume growth


Global case sales increased +9% in FY20, underpinned by growth into the UK (case sales up +23%) which benefitted from the annualisation of a distribution listing signed in the prior comparable period. DGL continues to perform well in its target growth market of North America ( up +8%), with a good case sales growth against a backdrop of benign market growth. New Zealand was one of few import regions to experience growth in the market. Average realised price increased +1% with foreign exchange tailwinds offsetting a negative country/varietal price mix impact.


Margin expansion, 2020 harvest supports further improvement


DGL experienced margin expansion, supported by strong volumes and a reduction in marketing spend. COVID-19 disruption contributed to lower marketing spend with more limited promotional spend (e.g. no in-store tastings), which we expect to normalise in part in the coming period. DGL's 2020 harvest was +7% ahead of the prior year period, which is supportive of lower costs of goods sold per case, driving higher gross margin.


Wide guidance range a function of heightened uncertainty


DGL updated capex guidance, signalling FY21 spend of NZ$52m. Whilst up on our expectations it is largely a function of timing, with FY20 capex lower than forecast. Capex is targeted towards further winery development and additional land acquisition, predominantly in Hawkes Bay​​​, with sales forecasts backed by its current land bank. Case sales growth is expected to moderate in FY21 (up +2%), picking up into FY22 and FY23 (up +7% in each).​​ DGL's wide earnings guidance range is illustrative of economic uncertainty, however, we view its retail presence, distribution footprint and well established brand as offering more resilient qualities than other beverage companies. As such, we expect FY21 operating NPAT of NZ$64.6m, towards the top end of the guidance range.




Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




Delegat Group: FY20 — Continue to Cellar

<h2>Delegat&nbsp;Group</h2>
<p><strong>A Good Drop</strong></p>
<h3>RESEARCH&nbsp;INSIGHTS</h3>
<p>Delegat&nbsp;(DGL) continues to deliver ahead of expectations, upgrading its FY20 earnings guidance +13%, underpinned by higher case sales and better than expected price realisation. Although the backdrop appears uncertain for alcohol consumption, DGL is relatively well positioned, in our opinion, with higher levels of exposure to off premise consumption.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/851/original/image_557975731592957712816.png?1592957714" class="editor-image img-responsive" data-smartkarma-image-id="141851"></figure>
<div>
<h3>FY20E guidance upgrade underpinned by improved price realisation</h3>
</div>
<div id="m_-5181876853212874863irwuc">
<p>DGL upgraded its FY20&nbsp;Operating NPAT guidance +13% to NZ$59.0m (previously NZ$52.4m), on the back of higher case sales, better price realisation, and lower marketing and financing costs. DGL guided to FY20&nbsp;case sales of 3,279 ('000 cases), up +9% on the prior year period and +1% ahead of our assumptions.</p>
<ul>
<li><strong>Price</strong>:&nbsp;Sales market mix changes, in favour of North America, is the key driver of higher than expected average realised prices. In addition, foreign exchange movements provide a positive tailwind, albeit small.</li>
<li><strong>Costs</strong>:&nbsp;Marketing activity and corporate travel related costs were suppressed during&nbsp;COVID-19, reducing&nbsp;DGL's&nbsp;operating cost base in 2H20E. Low debt levels and falling interest rates also contributed&nbsp;to lower interest costs.&nbsp;</li>
</ul>
</div>
<div>
<h3>Outlook uncertain&nbsp;but DGL relatively well positioned</h3>
</div>
<div id="m_-5181876853212874863ik5de">
<p>The economic backdrop remains uncertain, with expectations that global wine consumption declines in the near-term&nbsp;due to the disruption of the food service channel, more than offsetting an increase in at home consumption. DGL, however, appears comparatively well positioned in our view, with its sales predominantly exposed to the off-premise channel. We remain comfortable with our pre&nbsp;COVID-19&nbsp;case sales growth assumptions. DGL completed its 2020 harvest in April, with a total crush of 38,129 tonnes, in line with expectations and supportive of continued growth.</p>
<p>In addition,&nbsp;DGL has been reducing its gearing levels, backed by strong cash flows, with&nbsp;surplus balance sheet headroom providing flexibility for opportunistic land acquisitions.</p>
</div>
<div>
<h3>Earnings changes</h3>
</div>
<div id="m_-5181876853212874863ir8yy">
<p>We have made positive revisions to our near-term forecasts to reflect updated earnings guidance. We lift our FY20E operating NPAT assumption +11% to NZ$59.3m, driven by 1) a +2% increase in case sales, 2) a +1% lift to our assumed average sales price, and 3) a reduced cost base. We have made smaller earnings changes over the medium-term (FY21E up +4.5%, FY22E up +3.4%) reflecting higher underlying price assumptions and favourable foreign exchange movements, offset slightly by higher marketing costs as DGL looks to reinvest in its brand.</p>
</div>
<div>
<div>
<div>
<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
</div>
</div>
</div>

Delegat&nbsp;Group
A Good Drop
RESEARCH&nbsp;INSIGHTS
Delegat&nbsp;(DGL) continues to deliver ahead of expectations, upgrading its FY20 earnings guidance +13%, underpinned by higher case sales and better than expected price realisation. Although the backdrop appears uncertain for alcohol consumption, DGL is relatively well positioned, in our opinion, with higher levels of exposure to off premise consumption.&nbsp;


FY20E guidance upgrade underpinned by improved price realisation


DGL upgraded its FY20&nbsp;Operating NPAT guidance +13% to NZ$59.0m (previously NZ$52.4m), on the back of higher case sales, better price realisation, and lower marketing and financing costs. DGL guided to FY20&nbsp;case sales of 3,279 ('000 cases), up +9% on the prior year period and +1% ahead of our assumptions.

Price:&nbsp;Sales market mix changes, in favour of North America, is the key driver of higher than expected average realised prices. In addition, foreign exchange movements provide a positive tailwind, albeit small.
Costs:&nbsp;Marketing activity and corporate travel related costs were suppressed during&nbsp;COVID-19, reducing&nbsp;DGL's&nbsp;operating cost base in 2H20E. Low debt levels and falling interest rates also contributed&nbsp;to lower interest costs.&nbsp;



Outlook uncertain&nbsp;but DGL relatively well positioned


The economic backdrop remains uncertain, with expectations that global wine consumption declines in the near-term&nbsp;due to the disruption of the food service channel, more than offsetting an increase in at home consumption. DGL, however, appears comparatively well positioned in our view, with its sales predominantly exposed to the off-premise channel. We remain comfortable with our pre&nbsp;COVID-19&nbsp;case sales growth assumptions. DGL completed its 2020 harvest in April, with a total crush of 38,129 tonnes, in line with expectations and supportive of continued growth.
In addition,&nbsp;DGL has been reducing its gearing levels, backed by strong cash flows, with&nbsp;surplus balance sheet headroom providing flexibility for opportunistic land acquisitions.


Earnings changes


We have made positive revisions to our near-term forecasts to reflect updated earnings guidance. We lift our FY20E operating NPAT assumption +11% to NZ$59.3m, driven by 1) a +2% increase in case sales, 2) a +1% lift to our assumed average sales price, and 3) a reduced cost base. We have made smaller earnings changes over the medium-term (FY21E up +4.5%, FY22E up +3.4%) reflecting higher underlying price assumptions and favourable foreign exchange movements, offset slightly by higher marketing costs as DGL looks to reinvest in its brand.




Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255




<h2>Delegat Group</h2>
<p><strong>1H20 Result&nbsp;— A Good Vintage</strong></p>
<p><strong>Guy Hooper</strong><br>guy.hooper@forsythbarr.co.nz<br>+64 4 495 5255</p>
<p><strong>RESEARCH&nbsp;INSIGHTS</strong></p>
<p>Delegat&nbsp;(DGL) delivered another period of robust earnings growth, ahead of expectations, underpinned by strong case sales growth in the UK and North American markets. DGL reiterated its FY20E guidance, with&nbsp;outlook commentary suggesting a slowdown in the second half as (1) the cost impact of a softer 2019 vintage rolls through, (2) case sales growth moderates, and (3) marketing expenses relating to brand investment pick up. At this stage, we see guidance as conservative and see risk to the upside.</p>
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col> <col> <col span="2"> <col span="2"> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">DGL</td>
<td style="width: 48pt;">Financials:Jun/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$11.05</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">51.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">53.2</td>
<td style="text-align: left; width: 43.2pt;">61.5&nbsp;</td>
<td style="text-align: left; width: 48pt;">71.4&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">14.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">13.6&nbsp;</td>
<td style="text-align: left; width: 48pt;">12.2</td>
<td style="text-align: left; width: 42.6pt;">10.8&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">101.1m</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">50.8</td>
<td style="text-align: left; width: 42.6pt;">52.6&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">60.8&nbsp;</td>
<td style="text-align: left; width: 48pt;">70.6&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">16.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">16.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">14.2</td>
<td style="text-align: left; width: 42.6pt;">12.4&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$1,117m</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">14.5</td>
<td style="text-align: left; width: 42.6pt;">3.4&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">15.7</td>
<td style="text-align: left; width: 48pt;">16.2&nbsp;</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">21.7</td>
<td style="text-align: left; width: 42.6pt;">21.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">18.2</td>
<td style="text-align: left; width: 42.6pt;">15.6</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">9.1k (NZ$100k)</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">17.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">17.0&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">18.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">19.0&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">3.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">2.9&nbsp;</td>
<td style="text-align: left; width: 48pt;">2.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">2.3&nbsp;</td>
</tr>
<tr>
<td></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">100</td>
<td style="text-align: left; width: 42.6pt;">100</td>
<td style="text-align: left; width: 43.2pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">1.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">1.5&nbsp;</td>
<td style="text-align: left; width: 48pt;">1.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">1.7&nbsp;</td>
</tr>
<tr>
<td></td>
<td style="width: 48pt;"></td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">2.1&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">2.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">2.3&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">2.4&nbsp;</td>
</tr>
</tbody>
</table>
<p><strong>Result highlights</strong></p>
<ul type="disc">
<li><strong>North America cases sales up +13%</strong>:&nbsp;Encouraging result against a backdrop of benign market growth.&nbsp;DGL&nbsp;has&nbsp;benefitted&nbsp;from an ongoing&nbsp;premiumisation&nbsp;trend alongside growth in demand for&nbsp;sauvignon&nbsp;blanc. North America remains a focus market for&nbsp;DGL&nbsp;and we expect to see growth continue at similar levels.</li>
<li><strong>UK/Europe case sales up +28%</strong>:&nbsp;Growth is underpinned by its new distribution listing signed in the prior comparable period, combined with reasonable underlying Christmas growth. As the impact from the new listing rolls through, we expect growth to moderate.</li>
<li><strong>NZ/Australia case sales down -12%</strong>:&nbsp;Reduction follows negotiations around price with a large customer in Australia, although we suspect there is an element of&nbsp;strong growth in other markets contributing to a change in market mix. Commentary suggests the decline has stabilised and&nbsp;sales growth is expected to recover over the medium-term.</li>
<li><strong>Net debt reduced to NZ$267m</strong>:&nbsp;DGL&nbsp;continues to reduce its gearing (1H20 34%), backed by strong&nbsp;cashflows, with surplus balance sheet headroom providing flexibility for opportunistic land acquisitions.</li>
</ul>
<p><strong>Harvest appears on track</strong></p>
<p>DGL is entering the important harvest period. New Zealand conditions have been favourable to date and early indications suggest harvest is expected to be in line with forecasts. Dry weather suggests softer Australian yields are likely, however, Australia remains a small part of DGL's total harvest volume. We expect to see a harvest update in May 2020.</p>
<p><strong>Outlook reiterated, see upside to guidance</strong></p>
<p>DGL has reiterated its FY20E case sales target of +8% growth, guiding for Operating NPAT “in line with market consensus of NZ$52.4m”. Whilst we expect growth to slow in the second half (from lower case sales growth and higher expenses), we view guidance as conservative, as is typical&nbsp;ahead of the key harvest period. Over the medium-term we continue to see robust earnings growth, with margin recovery in FY21E as the impact of the softer 2019 vintage begins to roll&nbsp;off. Case sales growth forecasts are&nbsp;underpinned by&nbsp;DGL's&nbsp;current land bank.</p>

Delegat Group
1H20 Result&nbsp;— A Good Vintage
Guy Hooper guy.hooper@forsythbarr.co.nz +64 4 495 5255
RESEARCH&nbsp;INSIGHTS
Delegat&nbsp;(DGL) delivered another period of robust earnings growth, ahead of expectations, underpinned by strong case sales growth in the UK and North American markets. DGL reiterated its FY20E guidance, with&nbsp;outlook commentary suggesting a slowdown in the second half as (1) the cost impact of a softer 2019 vintage rolls through, (2) case sales growth moderates, and (3) marketing expenses relating to brand investment pick up. At this stage, we see guidance as conservative and see risk to the upside.
         


NZX Code
DGL
Financials:Jun/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$11.05
NPAT* (NZ$m)
51.4&nbsp;
53.2
61.5&nbsp;
71.4&nbsp;
EV/EBITDA
14.0&nbsp;
13.6&nbsp;
12.2
10.8&nbsp;


Issued shares
101.1m
EPS* (NZc)
50.8
52.6&nbsp;
60.8&nbsp;
70.6&nbsp;
EV/EBIT
16.6&nbsp;
16.1&nbsp;
14.2
12.4&nbsp;


Market cap
NZ$1,117m
EPS growth* (%)
14.5
3.4&nbsp;
15.7
16.2&nbsp;
PE
21.7
21.0&nbsp;
18.2
15.6


Avg daily turnover
9.1k (NZ$100k)
DPS (NZc)
17.0&nbsp;
17.0&nbsp;
18.0&nbsp;
19.0&nbsp;
Price/NTA
3.2&nbsp;
2.9&nbsp;
2.6&nbsp;
2.3&nbsp;




Imputation (%)
100
100
100
100
Cash div yld (%)
1.5&nbsp;
1.5&nbsp;
1.6&nbsp;
1.7&nbsp;




*Based on normalised profits


Gross div yld (%)
2.1&nbsp;
2.1&nbsp;
2.3&nbsp;
2.4&nbsp;



Result highlights

North America cases sales up +13%:&nbsp;Encouraging result against a backdrop of benign market growth.&nbsp;DGL&nbsp;has&nbsp;benefitted&nbsp;from an ongoing&nbsp;premiumisation&nbsp;trend alongside growth in demand for&nbsp;sauvignon&nbsp;blanc. North America remains a focus market for&nbsp;DGL&nbsp;and we expect to see growth continue at similar levels.
UK/Europe case sales up +28%:&nbsp;Growth is underpinned by its new distribution listing signed in the prior comparable period, combined with reasonable underlying Christmas growth. As the impact from the new listing rolls through, we expect growth to moderate.
NZ/Australia case sales down -12%:&nbsp;Reduction follows negotiations around price with a large customer in Australia, although we suspect there is an element of&nbsp;strong growth in other markets contributing to a change in market mix. Commentary suggests the decline has stabilised and&nbsp;sales growth is expected to recover over the medium-term.
Net debt reduced to NZ$267m:&nbsp;DGL&nbsp;continues to reduce its gearing (1H20 34%), backed by strong&nbsp;cashflows, with surplus balance sheet headroom providing flexibility for opportunistic land acquisitions.

Harvest appears on track
DGL is entering the important harvest period. New Zealand conditions have been favourable to date and early indications suggest harvest is expected to be in line with forecasts. Dry weather suggests softer Australian yields are likely, however, Australia remains a small part of DGL's total harvest volume. We expect to see a harvest update in May 2020.
Outlook reiterated, see upside to guidance
DGL has reiterated its FY20E case sales target of +8% growth, guiding for Operating NPAT “in line with market consensus of NZ$52.4m”. Whilst we expect growth to slow in the second half (from lower case sales growth and higher expenses), we view guidance as conservative, as is typical&nbsp;ahead of the key harvest period. Over the medium-term we continue to see robust earnings growth, with margin recovery in FY21E as the impact of the softer 2019 vintage begins to roll&nbsp;off. Case sales growth forecasts are&nbsp;underpinned by&nbsp;DGL's&nbsp;current land bank.

Delegat Group: 1H20 Result — A Good Vintage

New Zealand

Delegat Group Ltd. produces wine.  The Company buys grapes from local growers and produces sauvignon blanc, chardonnay, pinot noir, and merlot.  Delegat markets its wines in North America, Europe, Asia, the Middle East, Australia, and New Zealand.

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