Delegats Group Ltd [DGL.NZ] had a poor 2010 half year result out last week and that has had the effect of a massive sudden share price drop from around NZ2.65 down to $2.10 at close of market yesterday. This share price drop is why Delegats is the Stock of the Week.
This is only 20c off a one year low of $1.90 and 50c off its $1.40 IPO price back in 2006.
There has been a one-off bad debt provision for a defunct UK wine retailer that hit the current profit and increased sales costs with a comment about our strong dollar coming from management having an effect on profit.
The outlook for the company is a profit down 30-40% on last year based on higher sales, higher costs and lower margins because of a worldwide wine glut.
Global wine sales have been hit hard during the economic downturn and this is a cyclical thing for winemakers. Delegats operates at the middle premium end of the market so has been hit harder than others as wine drinkers look for cheaper brands to quaff.
Delegats is a well run company though and its long history shows it has handled economic humps well.
The share price drop is a good opportunity if you have been admiring this company for some time. Its good growth, until now, has meant its share price has run away from a sensible valuation and it is now approaching fair value.
The share price could of course go lower but it seems to have currently hit a floor of around the $2.10 mark.
Buy on further weakness with a long term goal in mind.
Delegats @ Share Investor
Lets drink to Delegats
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