Napa Valley winemaker Cosentino is producing tasty organic growth and this month made the first of its many intended acquisitions, in the shape of an earnings-enhancing 'virtual winemaker' Blockheadia Ringnosii.

Founded in 1980 as a producer and blender of ultra-premium wines, the company is headed by Australian M&A expert Neville Calvert, a founder of KPMG’s global wine group. He floated Cosentino on AIM in December, raking in £11.4m at 125p.

Calvert stresses the importance of reputation in upholding margins and points to an exclusive deal at the Cannes Film Festival as an example of the winery's prestigious standing. Americans are increasingly moving from grain to grape, with the number of wine consumers increasing 32% (to 25.4m) over the last three years and the Californian premium market growing by 9% to $2.6bn in 2005.

In calendar 2005 the company sold 54,000 cases of wine, generating $9.2m (circa £5m) of turnover and squeezing losses from $2.3m to $0.4m. Gearing is 28% and $1.8m of cash sits in the bank. Internal infrastructure is being improved such that, once complete in summer 2006, total capacity will stretch to 192,000 cases.

Generally, 20% of Cosentino’s grape supply comes from its own vineyards and the rest is bought from ‘gentleman farmers’. Its wine club, which provides excellent margins and 30% of revenues, doubled members to almost 4,300 in just over a year. Cosentino has a strong relationship with the largest liquor distributor in the States and recent legislative changes mean wine can be shipped across states, allowing access to ‘important’ states like New York.

Broker Arbuthnot forecasts profits of $5.6m and $10.1m for the next two years, producing earnings of 13.2p and 21.2p. This means the shares are trading at palatable p/e multiples of 10.8 and 6.7 times. Furthermore, Calvert insists the company is attractive to large consolidators in this space, saying ‘I’m sure someone will come and buy us'. Buy.

Cosentino Signature Wines	AIM	£1.52m	6.75p	0.00p
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