AU
UK
CA
US
IND
NZ
Company Overview:
Delegat Group Limited (NZX: DGL) is the global wine industry success story. It has achieved 22-fold growth since 2002 and is now the number one exporter of New Zealand wine to the world. Marlborough Wine Estates Group Limited (NZX: MWE) owns as well as operates vineyards in Awatere Valley, Marlborough.
Kalkine’s Sector Report covers the Key Financial Metrics, Risks, Outlook, Technical Analysis along with the Valuation, Target Price, and Recommendation on the stock.
1.Sector Landscape and Outlook
As per the Ministry for Primary Industries (MPI), since 2012/13, food and fibre sector export revenue witnessed an impressive 75% to a record $57.4 Bn for the year ended 30th June 2023. Post the years of consistent growth, there are expectations that export revenue would temporarily dip to $54.3 Bn for the year ended 30 June 2024, with exports returning to a record $57.7 Bn for the year ended 30 June 2025. This forecast growth is expected to be supported mainly by resilience of the food and fibre producers. Recently, the sector navigated a range of global events. The pandemic as well as conflicts overseas caused numerous challenges for the producers, including raising inflation and costs of living, supressing consumer demand, and causing a slowdown in China.
The effects of recent challenges on the largest sectors were evident, which includes dairy, red meat as well as wool, and forestry, with export revenue expected to fall this year. However, revenue growth for some other significant sectors like horticulture, seafood, and arable is expected to limit the overall decline in export revenues in 2023/24. This implies the resilience producers have achieved with the help of market and product diversification. The global dairy prices bounced back by ~12% from the lows in mid-August, but overall revenue is anticipated to dip 7% to $24.1 Bn for the year ended 30 June 2024.
The food and fibre sector made up for 10.5% of NZ’s gross domestic product (or GDP) in the year to 31 March 2022. This figure reflects only the direct contribution to GDP as well as includes the production of primary products, like dairy cattle farming as well as subsequent processing, and commercialisation industries like dairy product manufacturing.
Trend in Goods Imports and Exports (February 2024)
As per Stats.NZ, In February 2024, goods exports witnessed a rise of $823 Mn (or 16%) to $5.9 Bn as well as goods imports increased $194 Mn (or 3.3%) to $6.1 Bn. The monthly trade balance was the deficit of $218 Mn. Talking about the monthly export movements, with respect to China, total exports rose $154 Mn (or 10%) in February 2024 as compared to February 2023. The largest increases were witnessed in milk powder, butter, and cheese, rising by $159 Mn and then logs, wood, and wood articles, which were up $91 Mn and finally fish, crustaceans, and molluscs, rising by $21 Mn. The largest falls were encountered in preparations of milk, cereals, flour, and starch, down by $48 Mn and meat and edible offal, down by $30 Mn.
With respect to Australia, total exports increased $39 Mn (or 5.9%) and the largest rises were encountered in precious metals, jewellery, and coins, up by $28 Mn and miscellaneous edible preparations, rising by $15 Mn.
Exhibit 1: Merchandise trade values ($ Bn), exports and imports, February months, 2019-2024
Data Source: This work is based on/includes Stats NZ’s data which are licensed by Stats NZ for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group
Trends in Seafood Export Revenue
As per MPI, the seafood export revenue is expected to rise 8% to reach $2.3 Bn for the year ended 30th June 2024. Export prices are anticipated to remain high because of robust demand as well as tight supply. Export volumes are expected to rebound from the particularly bad year for seafood production helped by better production conditions for the aquaculture because of El Niño as well as higher workforce availability. Despite the improvements in prices, high input costs is expected to remain a challenge for some fishers and seafood farming businesses.
The continued robust demand, tight global supply as well as expectations of the weakened NZD are expected to drive increased export prices for critical NZ seafood products in the main markets. Additionally, improved workforce availability, improved shipping as well as better environmental conditions for aquaculture are expected to support rebound in export volumes.
Exhibit 2: Trend in Seafood Export Revenue 2019–24Forecast (F) (Year to 30 June, NZ$ million)
Data Source: This work is based on/includes the Ministry for Primary Industries data which are licensed under Crown for reuse under the Creative Commons Attribution 4.0 International Licence; Chart Created by Kalkine Group
Key Risks and Challenges:
Cyclone Gabrielle struck in the month of February 2023 with significant impacts on the food and fibre sector throughout North Island. The heavy rainfall as well as wind led to slips, damaged roads and flooding, including severe silt and debris deposition in parts of Hawke’s Bay and Gisborne Tairāwhiti.
NZ has not been immune to world events. For example, conflicts continue to cause challenges, like pushing up costs for the growers and farmers. However, NZ can take some confidence knowing that the pace of these cost increases is starting to slow.
Exhibit 3. Key Risks in Consumer Staples Sector:
Outlook:
The factors like strengthening kiwifruit prices as well as rebound in the seafood exports over the previous couple of years provide further promise, with the overall mid to long-term outlook for the food and fibre sector exports looking robust. Seafood, kiwifruit, apples and pears, cherries, and arable products are expected to increase export revenue despite the headwinds. The growth in such sectors is driven by firms working in niche markets in order to deliver high-value products as well as robust demand and prices for fruit and seeds.
The producers might witness downward pressure on profitability in 2023/24 as a result of high and increasing input costs for all the sectors and falls in prices for some outputs like milk, meat, and logs. However, most of the producers and processors are well-prepared to dodge the temporary economic storm, with the exception being some businesses having increased debt levels.
The producer and processor balance sheets are generally in good shape for several sectors going into 2023/24 because of record prices over the previous couple of years, enabling debt reduction. As and when the food and fibre sector navigates decreased commodity prices as well as increased input costs, and as and when shift happens to warmer and drier El Niño weather pattern, sectors would be further adjusting operations in order to improve business and sector outcomes.
Apart from the sector-specific factors, an analysis on 2 NZX-listed companies is provided. This report covers their insights, outlook, performance and potential as expected to be delivered in the near to medium term.
1) Delegat Group Limited (Recommendation: Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 667.45 million, Annual Dividend Yield (TTM)1: 4.21%)
Business Description:
Delegat Group Limited (NZX: DGL) is the global wine industry success story. It has achieved 22-fold growth since 2002 and is now the number one exporter of New Zealand wine to the world.
Outlook:
The ongoing deployment towards vineyard plantings as well as winery capacity expansion is expected to support future earnings growth. DGL has given FY 2024 Operating Profit guidance of between $57 Mn - $61 Mn. “DGL invested $44 Mn in NZ vineyard developments and winery expansion in the six-month period in order to provide for future earnings growth.
Technical Overview:
DGL Daily Technical Chart, Data Source: REFINITIV
Technical Commentary
On the daily chart, DGL’s stock prices correction from top levels and now taken support near lower trendline. Stock volume data also increased suggesting buying interest in stock. Moreover, the momentum oscillator RSI (14-period) is at 64.6, started moving north and suggesting recovery in price as well. However, the Current Market Price is trading below the trend-following indicators 21-period SMA and 50-period SMAs, can act as a small resistance.
A significant support level for the stock is located at NZD 5.90, while critical resistance level is placed at NZD 7.20.
Fundamental Valuation
Price/EPS Based Relative Valuation
Stock Recommendation
Considering the facts above, a ‘Buy’ recommendation on the stock has been provided at the closing market price of NZD 6.60 per share, down by 0.75% as on 28th March 2024.
2) Marlborough Wine Estates Group Limited (Recommendation: Speculative Buy, Potential Upside: Low Double-Digit) (M-Cap: NZD 43.9 Mn)
Business Description:
Marlborough Wine Estates Group Limited (NZX: MWE) owns as well as operates vineyards in Awatere Valley, Marlborough.
Outlook:
MWE has been pursuing growth initiatives, particularly growth of branded premium wine sales, under OTU and Music Bay brands, as well as expansion of domestic and international distribution networks. The company is focusing towards building premium branded wine sales growth in global and domestic markets and expanding current in-market distribution networks with the existing partners.
Technical Overview:
MWE Daily Technical Chart, Data Source: REFINITIV
Technical Commentary
On the daily chart, MWE’s stock prices are trading in rangebound zone and doing consolidation in lower levels. Moreover, the momentum oscillator RSI (14-period) is at 21.2, near bottom zone, suggesting price reversal from current levels. The Current Market Price is trading below the trend-following indicators 21-period SMA and 50-period SMAs, can act as a small resistance.
A significant support level for the stock is located at NZD 0.132, while critical resistance level is placed at NZD 0.165.
Stock Recommendation
Considering the facts above, a ‘Speculative Buy’ recommendation on the stock has been provided at the closing market price of NZD 0.148 per share, down by 0.67% as on 28 March 2024.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is March 28, 2024. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.
Note 4: Annual Dividend Yield is on a Trailing Twelve Month (TTM1) basis and are subject to change based on factors such as company performance, stock price changes, etc.
Technical Indicators Defined: -
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Disclaimer
Kalkine New Zealand Limited is a Financial Advice Provider (“FAP”) and is authorised by a Class 1 Financial Advice Provider Licence issued by Financial Markets Authority (“FMA”) to provide financial advice. Kalkine provides only general financial advice through its research reports following a person becoming a member. The reports contain buy/sell/hold and other recommendations in relation to equity financial products. The recommendations and opinions [on this website] / [in this report] do not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions. If you act on the advice in the research reports, you may have to pay fees, expenses or other amounts (but not to Kalkine). Further information about the complaints and dispute resolution process, as well as information about Kalkine’s duties are available on Kalkine’s website. Please read our Financial Advice Provider (FAP) disclosure statement and Complaints Handling Guide, which are available on the website.
Past performance is not a reliable indicator of future performance.
Please wait processing your request...