Majestic Wine slumps as Canaccord reiterates 'sell' rating, cuts target price

Majestic Wine’s shares fell on Friday as Canaccord Genuity reiterated a ‘sell’ rating and cut the target price to 290p from 350p.

The company last Wednesday issued a profit warning, saying it had been hit by the costs of a failed marketing campaign for its Naked Wines business in the US. Majestic said weak growth in its commercial division, which sells wine to businesses, had also weighed on results.

“Majestic Wine delivered an unwelcome downgrade of £4m to fiscal year 2017 pre-tax profit expectations, equating to a around 25% cut to previous consensus forecasts,” Canaccord said.

“Despite the company's understandable attempts to reassure investors on the progress in all other parts of the business, the fact that the two culprits - commercial and Naked USA - have been positioned as growth drivers is clearly a source of considerable disappointment.”

Canaccord said while management has been targeting double digit growth in commercial, gross margin of 200 basis points in the year to date has seen the top line resolutely flat. As a result, Majestic said this will deliver a £2m hit to earnings before interest and tax in the rest of the year.

“This begs the questions of (a) how much investment is required to grow the business (b) whether competition has strengthened (c) whether the divorce of retail and commercial has adversely affected the latter (even if it does appear to be helping the former) and finally (d) whether the business can actually deliver sustainable (turnover and profit) growth,” Canaccord said.

Majestic said the cost of the failed Naked Wines campaign to EBIT is also £2m. Canaccord said its greater concern is the dent to the company’s prospects in the US.

“We find it worrying that variances in customer/cultural behaviours across the USA may preclude a standardised national marketing approach, which could in turn raise costs and lower returns on investment.”

Shares dropped 4.04% to 300.57p at 1049 BST.