Introduction Of New Products And Entry Into Finland Will Expand Nordic Market Reach

Key Takeaways

• Growth in the Nordic market, new product offerings, and sales channels in Finland could boost revenue and market share.
  
• Strong cash flow and working capital management facilitate strategic investments and M&A activity, enhancing revenue, margins, and financial flexibility.
  
• Increased operating expenses and uncertain market dynamics in key regions may challenge Viva Wine Group's revenue stability and growth prospects.

Catalysts

Develops, markets, imports, and sells wines.

• Continued growth in the Nordic market, including the introduction of new product offerings and the entry into a new sales channel in Finland, indicates potential for increased revenue and market share. This is especially significant in capturing the segment for wines with alcohol content up to 8% sold outside the monopoly.
  
• High pace of innovation and the ability to rapidly adapt to consumer demand in the Nordic regions are expected to continue driving both volume and price increases, improving revenue and gross margins.
  
• Strong cash flow from operations and improved working capital management provide financial flexibility that could be used for strategic investments or to further strengthen the balance sheet, thereby enhancing net earnings.
  
• Focus on scaling new customer acquisition channels and refining brand positioning in the eCom segment aims to increase the customer base in existing European markets, potentially impacting revenue growth despite current market softness.
  
• Further M&A activity with a favorable deal flow and better valuation expectations suggest strategic growth opportunities that could enhance revenue and margins by expanding market presence or acquiring complementary businesses.

Viva Wine Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Viva Wine Group's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 5.7% in 3 years time.
• Analysts expect earnings to reach SEK 282.0 million (and earnings per share of SEK 3.17) by about March 2028, up from SEK 170.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, down from 21.3x today. This future PE is lower than the current PE for the SE Beverage industry at 20.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.76%, as per the Simply Wall St company report.

Viva Wine Group Future Earnings Per Share Growth

Risks

• The eCom segment is facing challenges with a decline in sales and negative organic growth of 2.2%, largely due to low consumer sentiment in Germany, affecting net sales and earnings.
  
• The overall market for the Nordic monopoly has softer demand, with decreased sales in two out of the three markets, which could impact revenue negatively despite increasing market shares.
  
• While the company has maintained strong growth and margins, increased operating expenses (OpEx) for professionalizing the organization may impact net margins going forward.
  
• There is uncertainty surrounding the Finnish market dynamics due to changes in sales channels, which could lead to a decrease in monopoly sales and thus affect revenue stability.
  
• Market volume growth in the Nordics is expected to be flat or slightly down, posing a risk to future revenue growth despite the company’s strategic initiatives.

Valuation

• The analysts have a consensus price target of SEK52.0 for Viva Wine Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK4.9 billion, earnings will come to SEK282.0 million, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 4.8%.
• Given the current share price of SEK40.8, the analyst price target of SEK52.0 is 21.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.