McGuigan stalks big boys
Recommendation
Marketing good Hunter Valley wines has been McGuigan's trump card and the runs are on the board. Sales and net profit both increased by around 30% in the year to June and exports are rocketing ahead. US sales were up 32% and exports now represent 46% of the company's overall sales.
Joint venture
The joint venture with SA bulk wine producer Simeon is the first step in McGuigan's plan to go after the big three.
It's a case of each sticking to the knitting: Simeon to grape processing, McGuigan to brand building. The alliance should save a handy $25m, the cost of a new winery. We've no wish to gloat but, having urged this cheaper expansion path in issue 74 (Accumulate - $2.90), it's good to see the advice being taken.
For its part, McGuigan has set up a new national distribution company, Icon Brands, the 10th largest wine distributor in Australia. McGuigan has high hopes that the company can emerge with a focus on marketing independent brands.
Brian McGuigan is intent on growing the company his way - understandably for a septuagenarian tipped from his nest once before. Now, though, the company is making its mark with a share price rocketing through $4 since the latest results.
With a PER of 20.5, now there's an even heavier weight on McGuigan's shoulders. How does he intend to bear it?
Well, acquisitions in the coming year have been ruled out in favour of brand building. Our concern is that a peek at the brands he is talking about building suggest that CPR is more appropriate.
Simeon's main bottled brand is Yaldara and the Southcorp brand being eyed by McGuigan is Tulloch. Dear oh dear, Yaldara and Tulloch, bywords for dinner party poison.
Positioning magic
Perhaps a dose of McGuigan-style positioning magic may do the trick as deep discounting is certainly not a favoured option.
The company's preferred niche is quality at a reasonable price, which keeps turnover and margins buoyant. The logic of 'not dirt cheap but not too steep' seems to work here and overseas but the market seems to be pricing the company on the basis that this particular battle has already been won.
There's no doubt that this company is in fine fettle for expansion, with gearing a low 29%. Indeed, McGuigan has been one of our favoured picks in the booming wine sector and since our first positive recommendation in issue 27 has risen a pleasing 47%.
Now, though, the company is trying to breathe new life into naff brands. That is a big task, even for someone with the expertise of McGuigan.
For that reason alone, we think it's a good time to put at least some of your gains in the bank, or invest elsewhere, which is why we're suggesting subscribers TAKE PART PROFITS.
Newcomers to the sector would be better off waiting as many of the wine stocks are now looking more than a little expensive.