New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Delegat Group<br>Outlook Tightened on Smaller Vintage</h2>
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<p><strong>NEUTRAL</strong></p>
<p>Delegat&nbsp;Group (DGL) has guided earnings expectations lower as a combination of supply chain disruption and a smaller 2021 vintage weigh on the near-term outlook. ​​​​​​​The smaller harvest is expected to suppress&nbsp;FY22 gross margin achieved, with fixed growing costs spread across a smaller crop. Our forecasts assume a return to average yields in 2022, and therefore expect gross margin to normalise with limited longer-term valuation impacts.&nbsp;​​​​​​​DGL is a quality operator with a strong brand and good track record. While smaller vintage years will occur we believe this agri risk is appropriately reflected in the price. NEUTRAL.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;We have cut our earnings expectations across our three year forecast period, reflecting lower earnings guidance on the back of a smaller 2021 vintage. FY21 and FY22 operating NPAT forecasts are lowered -5.6% and -14.9% to NZ$64.6m and NZ$60.3m respectively. We make limited changes to earnings in FY24 and beyond.</li>
<li><strong>Target price</strong>:&nbsp;We cut our target price -NZ$0.45 (-3%) to NZ$15.75 on the back of earnings changes.</li>
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<h3>FY21 earnings downgraded on supply chain congestion</h3>
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<p>DGL has pre-released its FY21 operating NPAT of NZ$64.6m, -4% below previous guidance and up +6% on the prior year period. The key driver of weakness has been lower case sales, which at 3,178,000 cases came in -6% below guidance as a result of supply chain congestion delaying revenue recognition.</p>
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<h3>Smaller 2021 vintage weighs on FY22 earnings guidance</h3>
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<p>DGL&nbsp;has released first time FY22 operating NPAT guidance of NZ$57m to NZ$61m, behind our previous expectations, as a combination of a smaller harvest, elevated supply costs, and unfavourable foreign exchange moves impact the near-term outlook. The company signalled&nbsp;a softer 2021 vintage at its ASM in April, down -1.7% on the prior year (2021 harvest of&nbsp;37,470 tonnes vs. 38,129 in 2020), albeit of excellent quality.&nbsp;As a result of the smaller harvest, FY22 and FY23 case sales guidance were revised -4.3% and -1.5% lower respectively.</p>
<p>We cut our FY22 operating NPAT forecast -15% to NZ$60.3m, towards the top end of guidance. The key driver of the downgrade is a lower gross margin assumption, however, we see scope for price increases amid tight New Zealand supply. We also lower our FY23 operating NPAT -6.7% to NZ$74.0m on the back of slightly lower case sales guidance and the gross margin impact from carry over inventory. We assume a full normalisation of gross margin in FY24, with little earnings impact beyond.&nbsp;</p>
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<div><strong>Guy Hooper</strong></div>
<div><a href="mailto:guy.hooper@forsythbarr.co.nz" target="_blank" rel="noopener">guy.hooper@forsythbarr.co.nz</a></div>
<div>+64 4 495 5255</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Delegat Group Outlook Tightened on Smaller Vintage

NEUTRAL
Delegat&nbsp;Group (DGL) has guided earnings expectations lower as a combination of supply chain disruption and a smaller 2021 vintage weigh on the near-term outlook. ​​​​​​​The smaller harvest is expected to suppress&nbsp;FY22 gross margin achieved, with fixed growing costs spread across a smaller crop. Our forecasts assume a return to average yields in 2022, and therefore expect gross margin to normalise with limited longer-term valuation impacts.&nbsp;​​​​​​​DGL is a quality operator with a strong brand and good track record. While smaller vintage years will occur we believe this agri risk is appropriately reflected in the price. NEUTRAL.


What's changed?&nbsp;



Earnings:&nbsp;We have cut our earnings expectations across our three year forecast period, reflecting lower earnings guidance on the back of a smaller 2021 vintage. FY21 and FY22 operating NPAT forecasts are lowered -5.6% and -14.9% to NZ$64.6m and NZ$60.3m respectively. We make limited changes to earnings in FY24 and beyond.
Target price:&nbsp;We cut our target price -NZ$0.45 (-3%) to NZ$15.75 on the back of earnings changes.



FY21 earnings downgraded on supply chain congestion


DGL has pre-released its FY21 operating NPAT of NZ$64.6m, -4% below previous guidance and up +6% on the prior year period. The key driver of weakness has been lower case sales, which at 3,178,000 cases came in -6% below guidance as a result of supply chain congestion delaying revenue recognition.


Smaller 2021 vintage weighs on FY22 earnings guidance


DGL&nbsp;has released first time FY22 operating NPAT guidance of NZ$57m to NZ$61m, behind our previous expectations, as a combination of a smaller harvest, elevated supply costs, and unfavourable foreign exchange moves impact the near-term outlook. The company signalled&nbsp;a softer 2021 vintage at its ASM in April, down -1.7% on the prior year (2021 harvest of&nbsp;37,470 tonnes vs. 38,129 in 2020), albeit of excellent quality.&nbsp;As a result of the smaller harvest, FY22 and FY23 case sales guidance were revised -4.3% and -1.5% lower respectively.
We cut our FY22 operating NPAT forecast -15% to NZ$60.3m, towards the top end of guidance. The key driver of the downgrade is a lower gross margin assumption, however, we see scope for price increases amid tight New Zealand supply. We also lower our FY23 operating NPAT -6.7% to NZ$74.0m on the back of slightly lower case sales guidance and the gross margin impact from carry over inventory. We assume a full normalisation of gross margin in FY24, with little earnings impact beyond.&nbsp;



Guy Hooper
guy.hooper@forsythbarr.co.nz
+64 4 495 5255





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Delegat Group: Outlook Tightened on Smaller Vintage