Peel Hunt starts Majestic Wine at 'buy', highlights Naked Wines potential

Peel Hunt initiated coverage of Majestic Wine at ‘buy’ with a 540p price target.

“Majestic Wine should be seen as an online growth play alongside a store-based cash cow. Most of the potential here lies in the fast-growing Naked Wines, which has disrupted the UK market and is doing the same in the larger US.”

The brokerage said the acquisition of Naked Wines last year has transformed the outlook for the new enlarged group, following a loss of momentum at the Majestic Wine business over the past year or so, during which time it struggled to compete with the supermarkets.

“Ultimately however, the upside from putting Majestic back on a growth trajectory will be eclipsed by the global potential of Naked Wines,” said Peel, whose excitement is built around the economics of the enlarged group.

It pointed to an addressable market of £17bn, a naturally engaged customer, attractive lifetime values and return on investment, and a highly profitable marginal customer.

Naked Wines customers – known as Angels – pay £20 monthly ($40 in the US and Australia) by direct debit and management uses this cash to fund small winemakers around the globe, giving those winemakers visibility of demand and the chance to retail to the Angels, and thus the ability to grow their wares with wine quality front of mind rather than economics.

“Our sense is the new strategy and growth prospects for the business have yet to be fully understood by the market, despite the recent improvement in share price,” said Peel Hunt.

At 0947 BST, shares were up 1.4% to 444.75p.