Delegat’s growth not matched by share price rises

Delegat’s profit, revenue and dividend payments are all on the rise, but the wine company’s share price stubbornly refuses to budge very far.

Currently sitting at the $2.50 level, the company’s share price has not changed all that much since reaching that mark soon after it listed in 2006, despite continued growth.

The dilemma of the languishing share price when the company was seeing profit rise by 57% was raised at the Delegat’s annual meeting in Auckland yesterday but managing director Jim Delegat said it was just a matter of time before the market noticed the underperforming stock.

“I have no doubt the share price will go up from quality of earnings. If the market understands that we are consistently good at delivering good earnings, that price will rise.

“The market also sees the wine industry seen as a risky agricultural investment, but we’re really a FMCG industry, delivering high quality goods within a good time frame. We also have strong risk management programmes which manage issues around weather and crop damage very well.”

He pointed out the quiet share price did not impact on the company’s growth plans, that the relative quiet nature of the stock was affected by a small number of total investors and that companies that listed at the same time as Delegat’s had been decimated by the economic conditions of the past few years.

The company’s recent strong results grew from sales success in the UK, Australia and the US, with plans to become the number one New Zealand sauvignon blanc in the US by this time next year, while also making a strong push into the Canadian market.

Mr Delegat said the company also benefited from the “temporary trend” for consumers to drink wine at home and its push into the sparkling wine arena.

However, he said the company’s 2010 profit would not be much of an improvement on 2009’s record result, due primarily to foreign exchange fluctuations.

“With the currency all over the place, profit should be in line, but it is frustrating because it means you’re selling more wine for the same profit.”

The company is also keeping a close eye on the current oversupply issues, which it expects to continue for another two to three years.

Mr Delegat said the company was concerned about impact on brand New Zealand by bulk sales, but added Oyster Bay wines had been successful enough to transcend the New Zealand category.

Just don’t call it a glut, said Mr Delegat.

“It’s not a glut, that’s an old term from old Europe. This is an imbalance caused because the industry got ahead of ourselves because the market was growing so fast. You get gluts when consumption is down and that’s just not happening.”

The question of succession was also raised at yesterday’s meeting and while chairman Bob Wilton said the company was very conscious of having a succession plan and had been discussing the issue for some time, Mr Delegat showed few signs of budging.

“I’ll be around for a while yet.”