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 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

<h2>Delegat Group (DGL)</h2>
<p><strong>1H20 Result Initial Impressions – Strong case sales, FY20 outlook unchanged</strong></p>
<p>Delegat Group’s (DGL) 1H20 result was ahead of our expectations with strong case sales and earnings growth. DGL reported 1H20 Operating NPAT up +10% to NZ$34.4m (ahead of our expectations, NZ$31.5m), on the back of case sales growth of +10% to 1,733,000 (we had been forecasting +7% growth).</p>
<p><strong>Outlook commentary unchanged</strong></p>
<p>DGL has reiterated its case sales guidance of +8% growth (3,240,000 cases) and expects FY20E Operating NPAT “in line with market consensus of NZ$52.4m” (FB FY20E NZ$51.5m). Despite a strong 1H20 result, full year guidance commentary suggests the 1H20 beat relative to our forecasts is down to timing. However, commentary is limited and we for additional colour on the earnings call.</p>
<p><strong>Divisional highlights</strong></p>
<ul>
<li><strong>Revenue growth of +9% was driven by</strong>: Case sales (up +10%), with the average NZ$ sales price detracted marginally (-1%). Of the value decline, a changing pricing/product mix contributed -2% while FX movements were favourable, +1%.</li>
<li><strong>North America case sales of 722,000, up +13%</strong>: Encouraging growth in what is a target market. Ongoing growth against a backdrop of relatively benign wine consumption growth in the US is positive and a sign of market share gains.</li>
<li><strong>UK/Europe case sales of 601,000, up +28%</strong>: We suspect the main driver of strong case sales growth, is continued growth of DGL’s new Co-Op customer.</li>
<li><strong>NZ/Australia cases of 410,000, down -12%</strong>: Likely a factor of strong growth in other markets driving a change in market mix.</li>
</ul>
<p><strong>Conference call 11am&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</strong></p>
<p>Management will host a conference call at 11am (NZT).&nbsp;Dial in details: New Zealand 0800 815 732&nbsp;(Australia 1800 820 237, USA 1800 458 4121),&nbsp;Conference ID:&nbsp;5601007</p>
<p><strong>Profit and loss summary (NZ$m)</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1659364884347354723&amp;th=17073f921447fe63&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ-fPfaJIei0mhEs8jDlW3qDuGffDuBh-ewQ_MsTcVZVd_5fO1GJLMqAvky-vquLb35bprq3cGe8Vg9JgaKHdMlQhngZWhjSl5broWkLo_zbzM7GbbwdtenTwnQ&amp;disp=emb" width="681" height="417" class="editor-image img-responsive" data-image-whitelisted=""></figure>
<p>Source: Company reports, Forsyth Barr analysis</p>
<p><strong>Guy Hooper</strong>&nbsp;<br>Analyst, Equities</p>
<p><em>P: +64 4 495 5255 | TF: 0800 367 227&nbsp;</em><br><em>Level 22, NTT Tower, 157 Lambton Quay, Wellington</em></p>

Delegat Group (DGL)
1H20 Result Initial Impressions – Strong case sales, FY20 outlook unchanged
Delegat Group’s (DGL) 1H20 result was ahead of our expectations with strong case sales and earnings growth. DGL reported 1H20 Operating NPAT up +10% to NZ$34.4m (ahead of our expectations, NZ$31.5m), on the back of case sales growth of +10% to 1,733,000 (we had been forecasting +7% growth).
Outlook commentary unchanged
DGL has reiterated its case sales guidance of +8% growth (3,240,000 cases) and expects FY20E Operating NPAT “in line with market consensus of NZ$52.4m” (FB FY20E NZ$51.5m). Despite a strong 1H20 result, full year guidance commentary suggests the 1H20 beat relative to our forecasts is down to timing. However, commentary is limited and we for additional colour on the earnings call.
Divisional highlights

Revenue growth of +9% was driven by: Case sales (up +10%), with the average NZ$ sales price detracted marginally (-1%). Of the value decline, a changing pricing/product mix contributed -2% while FX movements were favourable, +1%.
North America case sales of 722,000, up +13%: Encouraging growth in what is a target market. Ongoing growth against a backdrop of relatively benign wine consumption growth in the US is positive and a sign of market share gains.
UK/Europe case sales of 601,000, up +28%: We suspect the main driver of strong case sales growth, is continued growth of DGL’s new Co-Op customer.
NZ/Australia cases of 410,000, down -12%: Likely a factor of strong growth in other markets driving a change in market mix.

Conference call 11am&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management will host a conference call at 11am (NZT).&nbsp;Dial in details: New Zealand 0800 815 732&nbsp;(Australia 1800 820 237, USA 1800 458 4121),&nbsp;Conference ID:&nbsp;5601007
Profit and loss summary (NZ$m)

Source: Company reports, Forsyth Barr analysis
Guy Hooper&nbsp; Analyst, Equities
P: +64 4 495 5255 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Delegat Group (DGL): 1H20 Result Initial Impressions – Strong Case Sales, FY20 Outlook Unchanged

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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Delegat (DGL NZ)

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