United Kingdom | Consumer | Consumer Discretionary | VINO LN | Market Cap

£32.4m | 07 November 2022^

BUY Target Price 100.0p
Publication price 59.0p

*Corporate Broking Client of Liberum

Virgin Wines UK* Next events

A corker of a stock: A top pick for 2023 1H'23 trading update January 2023

Wayne Brown Anubhav Malhotra Adam Tomlinson Stock performance

+44 (0) 20 3100 2082 +44 (0) 20 3100 2197 +44 (0) 20 3100 2174
[email protected] [email protected] [email protected]

Virgin Wines must be one of the highest quality companies

we cover. It has a disciplined approach to growth, is taking
market share, has a stable and proven management team
and is delivering strong KPI’s – on average ahead of pre-
pandemic levels with sales and customer retention of 91%. Summary financials & valuation (£m)
Some were concerned that customers acquired during Calendar year
COVID would not perform to the same level as historic EV (CY) 22E 23E 24E 25E
norms – this has now been disproved (just look at Fig. 1 of Market Cap 32.5 32.5 32.5 32.5

this note). Outlook remains robust with new partnerships om

Net Debt/(Cash) (13.6) (17.9) (22.1) n.a.
Pension & other adj. 0.0 0.0 0.0 n.a.
signed up, resilient deposits incoming from WineBank il . c EV 18.9 14.5 10.3 32.5

a
customers, a strong balance sheet and forecast to deliver
m Valuation (CY)
£4m of FCF in 2023. FCF yield of c.12% highlightsgthe value P/E (x)
22E
8.6
23E
9.7
24E
9.5
25E
n.a.

on offer. @ Div Yield (%) 0.0 0.0 0.0 n.a.

ns
EV/Sales (x) 0.3 0.2 0.1 n.a.
EV/EBITDA (x) 3.2 2.6 1.8 n.a.

Resilient revenues in last financial yearm

o
ending June 2022
EV/EBIT (x)
FCFe Yield (%)
3.9
5.3
3.2
12.1
2.2
11.7
n.a.
n.a.

FY22 revenues were down £4.4m or 6.1% s m

vs.i FY21. However, revenues
Price / book (x) 1.4 1.2 1.1 n.a.

e
remained 63% above FY19 levels, the last full year without a Covid impact. Of
rmfrom lower new customer revenues
the £4.4m decline around £3.7m came
Financial year (June year end)
Financials (FY) 22A 23E 24E 25E
and lower gifting sales. This means core sales proved resilient down less than Sales 69.2 69.1 70.9 73.1
1% on FY21 at £54m. EBITDA 6.3 5.5 5.7 6.0
EBIT 5.3 4.5 4.6 4.9
EBIT Margin (%) 7.7 6.5 6.5 6.6
Key KPI’s remained strong: Net Interest (0.1) (0.1) (0.1) (0.1)
PBT 5.3 4.5 4.6 4.9
 During FY22 the group sold 980k cases (FY21 >1m cases) and served FD EPS (p) 7.5 6.2 6.0 6.4
more than 273k customers (FY21 >250k customers). DPS (p) 0.0 0.0 0.0 0.0

 Very steady and disciplined customer acquisition costs - During the Leverage (FY) 22A 23E 24E 25E
Net Debt/(Cash) (11.5) (15.7) (20.1) (24.1)
year, 105,000 new customers were acquired across all schemes, 5% Net Debt/EBITDA (x) (1.8) (2.9) (3.5) (4.0)
ahead of our 100k expectation, and cost per recruit was just £13.22 Net Debt/Mkt Cap (x) (0.4) (0.5) (0.6) (0.7)
against £13.49 a year ago. Source: Liberum, Bloomberg
All numbers are on a post-IFRS 16 basis (e.g. net
 Market share gains - This is an industry-leading result and has also debt includes operating leases)

led to notable market share gains – from 6.1% of the UK online wine
market in 2021 to 8.4% in 2022, according to industry benchmark
IBISWorld – as a result.
 Order frequency down a little but customer retention very steady -
Overall sales retention rate and customer retention rate were an impressive
91% with customer retention remaining very steady.
 The active base grew to 186k during the year up from 182k June’21

This document is a marketing communication and has been prepared and distributed by Liberum Capital Limited. It is not independent research prepared in accordance
with legal requirements designed to promote the independence of investment research and is not subject to a prohibition on dealing ahead of the dissemination of
investment research. For Reg-AC certification, see the end of the text. If this communication is distributed by another firm, it is considered independent third-party
research and additional information regarding such firm is provided at the end of this communication. Liberum does and seeks to do business with companies covered
in this communication. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this communication.
Investors should consider this communication as only a single factor in making their investment decision. ^Completed when first distributed.

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 Virgin Wines UK
07 November 2022

Even more encouragingly is the cohort analysis. This shows that even the
customers acquired during COVID have remained very sticky indeed
underpinning our confidence in the group’s customer acquisition strategy.

Figure 1: Cohort analysis highlights the stickiness and quality of the repeat customer base

Source: Company presentation

And this translates to sector leading paybacks and very strong margins from
the repeat customer base.
o m
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Figure 2: Paybacks have risen and remain very high Figure 3: Strong margin profile

a
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Source: Company presentation Source: Company presentation; Repeat net contribution is after COGS, after
marketing, after fulfilment but before head office and SG&

And despite the tough backdrop and concerns around customer spending,
the rate at which the group converts first time customers into repeats has
remained remarkably steady.

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 Virgin Wines UK
07 November 2022

Figure 4: Conversion rates remained very steady Figure 5: Strong customer acquisition profile despite the
backdrop

Source: Company presentation Source: Company presentation

 Wine Bank maintains its resilience - The group’s main subscription

scheme, WineBank, grew its membership by 8% from the prior year, with
revenues increasing by 21% during the period.
 Cancellation rates were maintained at a low level in WineBank at just o m
16.7% (FY21: 15.8%).
a li .c
Figure 6: Revenues continue to grow strongly at WineBank
gm
Figure 7: and so are deposits growing

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Source: Company presentation Source: Company presentation

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 Virgin Wines UK
07 November 2022

Figure 8: More customers are seeing the value in this Figure 9: and cancellation rates remain steady
scheme

Source: Company presentation Source: Company presentation

Wine Plan performed well considering the backdrop

Despite lower planned activity levels in Wine Plan, total revenues declined
2.3% and monthly yields from the membership remained strong at an average
of 65%.

o m
 Wine Plan is always under more pressure in times of lower consumer
confidence
a li .c
m
g YOY
 Despite that revenue through Wine Plan customers fell just 2.3%
 Over 22k customers on a Wine Plan scheme
s @
 Yield from customers over FY22 was 67.8% (FY21 n
o68.2%)
The group’s Wine Advisor team continue to offerm a personal and highly
i m
es
valued one-to-one service to over 45k customers.

 Revenue through our Wine Advisor rmteam continues to grow YOY +3.8%
 The highest AOV of all repeat channels

Increase in new partnerships this year

Over the past year Virgin Wines partnered with over 350 trusted brands to
drive over 65% of new customer acquisition.
 Several new partnerships were agreed during the year such as the i
newspaper, Priority from O2, Currys and The Rail Delivery Group. These
new initiatives have helped customer acquisition numbers increase 37%
YOY over Q4 of FY22 and with a strong pipeline of further partnerships to
come in 2023.
 Post balance sheet sign up of a significant new partner – The group
signed up Saga plc to exclusively launch and operate a co-branded wine
proposition for all Saga members. With such strong brand affinity, a
perfect demographic profile and ambitious expectations around the scale
of the partnership, we are confident surrounding its potential

Commercial operations ramping up

Following the reopening of the economy, the group has seen trade with its
travel partners ramp up. Both LNER and Avanti are key partners and during
the year has also added Great Western Railway to its portfolio.

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 Virgin Wines UK
07 November 2022

 FY22 has also seen the launch of a partnership with Moonpig, which has
developed substantially over the year. We are proud to be partnering with
such an innovative and like-minded business and our ‘Virgin Wines at
Moonpig’ initiative has proved extremely successful.
 There are now over 70 SKU’s listed with a significant growth potential
 The corporate gifting service grew +18% YoY
Gross margins - Despite the impact of inflation on inbound freight, packaging
and delivery costs, average gross profit as a percentage of revenue held
relatively steady. FY22 31.4%, FY21 31.6% and FY20 30.3%.

Adjusted EBITDA
The group achieved an EBITDA post IFRS of £6.2m, a 11% decrease from the
prior year but up 130% on a three-year basis (FY21: £7m, FY19: £2.7m) which
is a more meaningful comparison based on normalised pre-Covid trading
patterns. The fall reflects an increase investment in new customer acquisition
and the more challenging trading conditions. As a percentage of revenue,
Adjusted EBITDA was 9.0% (FY21: 9.5%; FY20: 8.5%).

Cash and working capital

The Group end of year cash balance for FY22 was £15.1m (FY21: £15.7m). om
These balances include cash deposits from WineBank customers of FY22
£7.4m (FY21: £7.3m). This cash is not used to fund working capital and is a li .c
kept in a ring-fenced client account separate from Group cash.
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 Virgin Wines UK
07 November 2022

Financial model
Figure 10: Income statement (£m)
June year-end 2022A 2023E 2024E
Total sales 69.2 69.1 70.9
Sales growth (%) n.a. (0.0) 2.6
Gross margin (%) 38.1 37.8 37.8
Cost of sales (42.8) (43.0) (44.1)
Gross profit 26.4 26.1 26.8
Operating expenses (20.6) (21.1) (21.6)
Administrative expenses 0.0 0.0 0.0
Share based payments 0.0 0.0 0.0
Underlying EBITDA 6.3 5.5 5.7
Depreciation (0.1) (0.2) (0.2)
Amortisation (not acquired) (0.3) (0.3) (0.4)
Underlying EBIT (pre JVs) 5.3 4.5 4.6
EBIT (pre JVs) margin (%) 7.7 6.5 6.5
Revenue 0.0 0.0 0.0
PBT 0.0 0.0 0.0
Tax 0.0 0.0 0.0
JV post tax profit 0.0 0.0 0.0
JV contribution 0.0 0.0 0.0
Profit on disposal 0.0 0.0 0.0
Underlying EBIT 5.3 4.5 4.6
EBIT Margin (%) 7.7 6.5 6.5
Amortisation of acquired intangibles 0.0 0.0 0.0
Exceptional / extraordinary costs
Reported EBIT
0.0
5.3
om 0.0
4.5
0.0
4.6
Non-operating exceptional costs
Interest income
a
0.0
0.0 li .c 0.0
0.0
0.0
0.0
Interest costs (0.1) (0.1) (0.1)
Pension credit / (cost)
Net Interest
gm 0.0
(0.1)
0.0
(0.1)
0.0
(0.1)
Underlying PBT
Reported PBT s @ 5.2
5.2
4.3
4.3
4.5
4.5
Underlying tax rate (%)
o n 0.0 0.0 0.0
Exceptional tax rate (%)
m 0.0 0.0 0.0

im
Reported tax rate (%) 0.0 0.0 0.0
Underlying tax
Reported tax
e s 0.0
(1.0)
0.0
(0.9)
0.0
(1.1)
Underlying PAT
Discontinued operations (net) rm 4.2
0.0
0.0
3.5
0.0
0.0
3.4
0.0
0.0
Profit on disposal
Reported PAT 4.2 3.5 3.4
Share of profit attributable to minorities 0.0 0.0 0.0
Preference dividends 0.0 0.0 0.0
Minorities 0.0 0.0 0.0
Underlying net income 4.2 3.5 3.4
Reported net income 4.2 3.5 3.4
Weighted average number of shares (basic) (m) 55.8 55.8 55.8
Weighted average number of shares (diluted) (m) 55.8 55.8 55.8
Number of shares at period end (basic) (m) 55.8 55.8 55.8
Reported EPS (basic) (p) 7.5 6.2 6.0
Reported EPS (diluted) (p) 7.5 6.2 6.0
Underlying EPS (basic) (p) 7.5 6.2 6.0
Underlying EPS (basic) growth (%) n.a. (17.7) (3.0)
Underlying EPS (diluted) (p) 7.5 6.2 6.0
Underlying EPS (diluted) growth (%) n.a. (17.7) (3.0)
Pro-forma EPS (diluted) (p) 7.5 6.2 6.0
DPS (Ordinary) (p) 0.0 0.0 0.0
DPS (Special) (p) 0.0 0.0 0.0
DPS (Total) (p) 0.0 0.0 0.0

Source: Liberum

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 Virgin Wines UK
07 November 2022

Figure 11: Cash flow statement (£m)

June year-end 2022A 2023E 2024E
Reported EBIT 5.3 4.5 4.6
Profit in associates 0.0 0.0 0.0
Depreciation 0.6 0.7 0.7
Amortisation 0.3 0.3 0.4
Loss / (profit) on sale of PPE 0.0 0.0 0.0
Share based payments 0.0 0.0 0.0
Increase/(Decrease) in provisions 0.0 0.0 0.0
Loss / (Gain) on business disposal 0.0 0.0 0.0
Other 0.0 0.0 0.0
Operating cash flows before movements in working capital 6.3 5.5 5.7
(Increase) / decrease in inventories (1.4) 0.5 0.4
(Increase) / decrease in receivables (0.9) 0.0 (0.0)
(Decrease) / increase in payables (2.9) 0.2 0.6
(Increase) / decrease in working capital (5.3) 0.7 1.0
Cash generated by operations 1.0 6.2 6.7
Tax paid 0.0 (0.9) (1.1)
Net cash flow from operating activities 1.0 5.4 5.5
Purchase of PPE (1.0) (1.0) (1.1)
Purchase of other intangibles 0.0 0.0 0.0
Disposals 0.0 0.0 0.0
Net capex (1.0) (1.0) (1.1)
Dividends from associates 0.0 0.0 0.0
Movement in short term investments 0.0 0.0 0.0
Acquisitions 0.0 0.0 0.0
(Investments) / disposals of associates 0.0 0.0 0.0
Net cash flow from investing activities (1.0) (1.0) (1.1)
Net interest received / (paid) 0.0
om 0.0 0.0

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Equity dividends paid 0.0 0.0 0.0
Share issues / (repurchases) 0.0 0.0 0.0
Increase / (decrease) in borrowings a
0.0 0.0 0.0

gm
Net cash flow from financing activities (0.6) (0.7) (0.6)
Increase in cash and cash equivalents (0.6) 3.7 3.8
(Increase) / decrease in borrowings
Repayment of finance leases
s @ 0.0
0.0
0.0
0.0
0.0
0.0
Exchange / other
(Increase) / decrease in net debt o n 0.0
0.0
0.0
0.0
0.0
0.0
Net cash / (debt) (start) m (8.1) 6.2 12.5
Net cash / (debt) (end) including leases
s im 11.5 15.7 20.1

e
Source: Liberum
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 Virgin Wines UK
07 November 2022

Figure 12: Balance sheet (£m)

June year-end 2022A 2023E 2024E
Goodwill 0.0 0.0 0.0
Other intangible assets 11.1 11.5 12.0
PPE 3.7 3.2 2.6
Trade and other LT receivables 0.0 0.0 0.0
Deferred tax asset 0.4 0.4 0.4
Investments in JVs / Associates 0.0 0.0 0.0
Retirement benefit asset 0.0 0.0 0.0
Other non-current assets 0.0 0.0 0.0
Fixed assets 15.2 15.1 15.1
Inventories 8.7 8.1 7.7
Trade and other receivables 2.5 2.5 2.5
Cash & cash equivalents 15.1 18.8 22.7
Financial assets 0.0 0.0 0.0
Current assets 26.2 29.4 32.9
Total Assets 41.4 44.6 48.0
Trade payables (15.5) (15.6) (16.2)
Borrowings 0.0 0.0 0.0
Tax liabilities 0.0 0.0 0.0
Provisions 0.0 0.0 0.0
Other current liabilities (0.5) (0.5) (0.5)
Current liabilities (15.9) (16.1) (16.7)
Total assets less current liabilities 25.5 28.5 31.3
Net current assets 10.3 13.3 16.2
Long-term borrowings and finance leases (3.1) (2.6) (2.1)
Provisions (0.3) (0.3) (0.3)
Other payables 0.0 0.0 0.0
Other non-current liabilities 0.0
om 0.0 0.0

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Net Assets 22.1 25.5 28.9
Total equity 22.1 25.5 28.9
Minority interests a
0.0 0.0 0.0

gm
Shareholders’ equity 22.1 25.5 28.9

Source: Liberum
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 Virgin Wines UK
07 November 2022

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his / her personal views about the subject securities registration requirement in the relevant province or
or issuers. No part of his/her compensation was, is, territory of Canada in which such offer or sale is
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For Australian Investors
o m
America by RJA, an entity registered with the
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li .c
This communication is distributed in Australia by
Liberum Capital Limited which is exempt from the
a
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pursuant to an arrangement between RJA, Liberum
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s @
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o n
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through a broker/dealer registered with the SEC, such
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restrict the distribution of this communication.

im
as Liberum Capital, Inc. or RJA. Persons in possession of this communication should
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10

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