Despite having most of its products effectively banned for a little over a fifth of the reporting period, Distell Group Holdings Ltd (code: DGH) published a sterling H1:21 result. Group revenue grew +3.8% y/y with volume growth of +0.8% y/y, profits and cash flows were equally strong and the Group’s balance sheet degeared further.
Context is important, and a glance across the major alcoholic beverage companies globally (Figure 1) reveals quite how impressive this growth is against some formidable competitors. In fact, Distell was the only major alcoholic beverage group (amongst this peer set) to report any volume growth through FY 20, despite the bulk of its revenues coming from a geography where alcohol was banned for a fifth of all trading day (i.e. South Africa)!
Sources: Various company reports; *Showing volume growth from Asahi’s alcoholic beverage segment only (c.37% of Group revenue); ** Showing volume growth from Kirin’s alcoholic beverage segment only (c.35% of Group revenue); *** Showing volume growth from LVMH’s wine & cognac segment only (c.11% of Group revenue)
Management has been cleaning up Distell’s (e.g. selling asset-heavy/profit-lite wine farms), growing major brands (e.g. Savanna Non-Alcoholic cider) and steadily building distribution (globally, into Africa and domestically). Furthermore, the Group’s portfolio is diversified with wines, spirits and ciders. Particularly wines & spirits benefitted from more home-based consumption (spirit volumes were +4,2%, wines were +5,4% but cider slipped -5,3%) while the Group’s exposure into Africa certainly helped (volumes into Africa leapt +11,7~20,3% y/y).
The above peer set does include some groups with exposures to non-alcohol categories that dilute the value of this comparison. Nothing is perfect. Still, a quick snapshot of these stock’s relative valuations (Figure 2) shows how the market is not rewarding Distell for its growth with a higher multiple. Indeed, this peer set has an average EV/EBITDA of 13,0x with an average volume decline of -6,5% versus Distell’s EV/EBITDA of 11,9x and volume growth of +0,8%.
Sources: Various company reports; *Showing volume growth from Asahi’s alcoholic beverage segment only (c.37% of Group revenue); ** Showing volume growth from Kirin’s alcoholic beverage segment only (c.35% of Group revenue); *** Showing volume growth from LVMH’s wine & cognac segment only (c.11% of Group revenue)
Yes, Distell is much smaller than these global groups. Yes, Distell has a much higher regional concentration (i.e. South Africa) than these global groups. And, yes, some of the global group (e.g. LVMH) have vast portfolios that are diversified away from alcoholic beverages and will naturally lower the meaningfulness of this comparison.
All that said and done, Distell is growing and it clear that the Group is starting to win market share. If African volume growth can continue, South Africa can recover (and stop banning alcohol) and if export growth remains (especially as duty-free becomes significant again), Distell’s prospects are looking exciting and there is a chance the market is not quite pricing this in yet.
Article originally appearing here.