DISCLAIMER
As always: this is not investment advise. Please DO YOUR OWN RESEARCH. Never trust any “stock tips” from anyone.
A few weeks ago I already mentioned that I had invested into a UK small cap company. Because of a lack of time I had to delay finishing the write-up but now I happily reveal the “UK mystery stock”:
Majesic Wine Plc is the dominant wine retailer in the UK for “medium to higher priced” wines, from 5 GBP/bottle upwards. They run a retail chain plus a commercial service for restaurants and a “fine wine” subsidiary. They recently purchased online only wine trader “Naked Wine” but we come to that later.
Charly Munger’s mantra is “Invert, always invert”. So let’s start this one with a couple of reasons why you shouldn’t buy Majestic Wine at the moment:
- BREXIT: This has potentially multiple negative impacts on Majestic. With a lower Pound, imports get more expensive plus a general potentially weak consumer climate could make things really difficult and squeeze margins and/or reduce volumes. On top of that, many of the bankers who might need to leave the City might be target customers
- The overall wine market in the UK hasn’t been growing in the last years so any growth needs to come from competitors. If Wine importers need to raise prices there is also the potential of a “substitution effect” towards other, cheaper alcoholic beverages like for instance craft beer which can be made locally.
- Current numbers do not look that good, even if one adjusts for one-offs etc. the stock is not “cheap”. The company cancelled the dividend for the current year.
- Even before the Brexit discussion, the business had weakened. The earnings peek has been the business year 2013/2014
- As everywhere in retail, online is definitely an issue for the wine trade.
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