By Jenny Ruth
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Friday 17th July 2009 |
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Pricing of New Zealand wines has come under pressure as they shift larger volumes in a global recession but Delegat's Oyster Bay brand continues to outperform the industry, says Adrian Allbon at Goldman Sachs JB Were.
He estimates underlying New Zealand wine pricing between January and May was down 18% while volumes were up 42% on the same period a year earlier.
"From a Delegat's perspective, we take comfort from the AC Neilsen data that management continues to execute well in a difficult environment," Allbon says.
He is forecasting the company's volumes were up in the six months ended June with average case pricing flat compared with the same six months a year earlier and down 4% on the six months ended December 2008.
"The key uncertainty is still how much marketing and promotional investment (captured in operating costs per case) Delegat's had had to make to maintain its pricing," Allbon says.
He says the stock remains cheap on a price-to-earnings ratio of about eight times forecast 2009 earnings and at a discount of about 29% to his valuation.
Still, "we acknowledge the risk to our positive investment case is negative earnings revisions for 2010 as analysts factor in a higher New Zealand dollar track and/or potentially higher operating costs per case."
BROKER CALL: Goldman Sachs JB Were rate Delegat's (NZX: DGL ) as BUY.
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