Majestic Wine

BUY

13/06/2011 Ben Jaglom

Wine specialist Majestic Wines (MJW) has reported a 26.6% increase in pre-tax profits for the year to March amid a buoyant wine-buying market.

The AIM-50 constituent declared pre-tax profits of £20.3 million on turnover up 10.3% to £257.3 million, with the company opening a total of 12 new stores over the period, giving a total UK store count of 165. A total dividend for the year of 13p was also reported, a rise of 26.2% on the 10.3p announced in the same period last year. Like-for-like sales in the UK were up by 5.3%.

The results were particularly strong in its premium 'fine wine' division, which sells wines priced at over £20 a bottle. Sales in this division increased by 23.7%, generating 6% of UK store sales. In its 'Majestic Wine' division, which generated the vast majority of revenue at £234.2 million, there was a 12.5% increase in transactions to £2 million, despite the decline in average spend per purchase to £126 (Majestic sells its wines in packs rather than individually). The average price of wine for a bottle purchased at Majestic is £6.94.

Following the results, analysts at house broker Investec raised their forecasts for both 2012 and 2013. The broker is now pencilling in pre-tax profits of £22.5 million for the year to March 2012 on sales of £284.1 million. In 2013, profits of £26 million are forecast on turnover of £320.1 million. EPS of 25.8p and 30.2p are forecast for 2012 and 2013 respectively. A dividend per share of 15.25p and 18p is forecast for 2012 and 2013.

Shares in Majestic have more than quadrupled since a 2009 low of 100p, defying critics who argued that a tough economic climate would lead to a decrease in spending at its stores amid cheap alternatives at supermarkets such as Tesco and Asda. However, its specialist knowledge of the sector and the fact that its wine crates offer good value when bought in bulk has led to a wave of organic growth. Offering a yield of 3.2% on 2012's dividend and with further store openings planned, we think the shares have not yet peaked. Buy.