Monday, September 8, 2008

Lets drink to Delegats

The good result from Delegats Group Ltd [DGL.NZ] last week got me thinking about a new future star of the NZX.

I'm not sure if it will be Delegats, they are but one major Kiwi wine maker, but the New Zealand wine industry is going to play a much bigger part in our economy as time goes on and industry players will want to get their hands on funds with which to expand their businesses.

Consolidation of a number of smaller Kiwi players to get economies of scale to compete with much larger international wine labels will also need to occur.

Some of the funds needed to expand these businesses will be obtained from borrowing money from banks and some could raise funds by listing on the NZX.

If we look at Delegats they seem to have approached their model of business in a most appropriate way.

While reasonably large in terms of cases sold, at $165.3 million or 1.4 million cases, by New Zealand standards, that figure pales into a rose' compared to international wine makers outputs.

Delegats have been clever though. They realise wine volume on an international scale will never be achievable from New Zealand, so they have gone for the "upper end" and have their own niche in the branded market, with their Oyster Bay label.

Apparently a good quality wine-maker(I cant tell the diff between a Carafe of house red Lafoot from a Ch√Ęteau Lafite) Delegat's Oyster Bay holds the number one New Zealand wine category position in the large export markets of Britain, Australia and Canada.

In a world where good wine makers are a dime a dozen Delegat's brands will do them well as they grow and allow them to sell their product at a premium price.

In 2008 the New Zealand wine industry had record export sales of $800m, a 14 per cent increase over 2007 and the industry as a whole expects to grow to $1 billion within the next few years.

Delegats were able to increase their exports by 20%, with the premium end of their sales probably responsible for that increase.

While there are obvious threats to agricultural businesses like wine growers-bad weather equals a bad year-the good management at Delagats, headed by Managing Director Jim Delegat seem to have planned well for inclement weather.

The mad hatters who are pushing the "climate change" industry and its associated taxes are also a growing threat to our Kiwi wine makers.

Delegats have a wide geographical spread of wineries, in North Islands Hawkes Bay, where a massive push into premium wines is in play, and where this writer is from, and Marlborough, a longer established wine region.

The Hawkes Bay and Marlborough regions hold the most promise, in my uneducated opinion, for a good future winery business to need more capital for expansion, buying more vineyards and establishing a brand for export and indeed local consumption.

There are however a number of wine regions in New Zealand, from mainland Auckland, through Gisbourne, down through Nelson and Marlborough, Canterbury and Central Otago and even Waiheke Island, with 26 vineyards on a very small Island in Auckland's Hauraki Gulf, is fast establishing their own unique viticulture community in a micro climate a few degrees warmer than Auckland itself.

The long established family winemakers, Nobilo, Delegats, Villa Maria and Vidals have tended to expand their businesses through profits and some vineyards and winemakers have been gobbled up by multinational drinks conglomerates looking for a brand or business in this new world of wine making down here in the South Pacific.

Stockmarket investors should keep a look out for the opportunities to invest in this sector of our economy, through future IPOs and capital raising's.

A part share in a good start up winery, in a good area, with a good vintner that you know well would be a good long term investment.

Even Delegats might be worth a punt.

Related Links

Full 2008 profit report 336 kb PDF (requires registration to download)
Delegats Group
Nobilo Wines
Vidal Wines

Discuss Delegats @ Share Investor Forum

Related Amazon Reading

The Complete Idiot's Guide to Starting and Running a Winery
The Complete Idiot's Guide to Starting and Running a Winery by Thomas Pellechia
Buy new: $12.89 / Used from: $7.91
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c Share Investor 2008

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