Italian Wine Brands

What company is Italian Wine Brands?

Italian Wine Brands (IWB) is the holding company of a leading producer and distributor in the Italian wine industry. As IWB does not own vineyards, the raw materials (grapes, must and bulk wine) are purchased from around 200 Italian vineyards and wine producers and then processed in the group’s two cellars (65%) and in third parties’ facilities (35%). 

The group distributes its products through two different channels: B2C and B2B. B2C involves the production and distribution of wine through non-store retail channels such as mail order, e-commerce, or telesales, mainly internationally, but also in Italy. Meanwhile, B2B is focused on sales and distribution and is oriented towards the international supermarket chains where private label or registered brand products are distributed. 

International Wine Brands was the first wine group to be listed in Italia (AIM Italia) in 2015, through a SPAC vehicle. Currently, its market capitalisation is around €180MM (7.4MM shares)

Italian wine brands structure
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Italian wine brands activities
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IWB Business model

The IWB Group’s business models has four steps 

  1. Purchase of raw materials: IWB purchases raw materials from more than 200 farmers. IWB does not invest in agricultural activities and does not own or manage any vineyards. 
  2. Vinification and bottling: IWB produces the wine in its two cellars, one in Puglia and another in Piedmont. The product is bottled both internally through three proprietary lines (65% of the volume) and externally (35% of the volume). 
  3. Marketing and sales: As stated before, IWB products are sold through two main channels: 
Italian wine brands wholesale model

Wholesale (B2B): focused on international markets and in particular on mass distribution through its own brands (>90%) and private label products (<10%). IWB’s main clients in this channel are giants of organised distribution such as Tesco, Aldi, Costco, etc… 

Italian wine brands distance selling model
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Distance selling (B2C): Through three sub-channels – direct mail, telesales and e-commerce – IWB’s competitive advantage in this channel comes from a logistics platform without precedent in the sector and long experience.

4.Logistics & distribution: IWB directly controls the distribution activities of the entire group thanks to its own logistics centre in Piedmont, with a storage capacity of 17,000 pallets.

What makes Italian Wine Brands shine in the European wine sector?

The IWB has a different philosophy that it is introducing into the European wine markets. It aims to create and manage through its internal marketing team high quality brands and blends with a strong identity and recognizability in the market. Unlike traditional companies in the sector, IWB believes that brand management is the key factor for success. IWB directly manages a portfolio of 30+ proprietary brands that make up roughly 90% of sales. 

As a consequence of this philosophy, IWB outsources the most capital-intensive activities, (agriculture – vineyard management). This strategy allows IWB to achieve operational flexibility unmatched in the industry while maintaining both very interesting margins and a strong identity through brand and distribution management. 

What is the Italian Wine Brands current situation?

IWB has achieved extraordinary results in 2020. It has been the results of two factors, its inexistent exposure to the hospitality sector and its e-commerce channel, pioneer in the industry and a differential company advantage in the Covid-19 situation.

It is not expected that the 29.3% growth experimented in 2020 continue in the coming years. However, its powerful e-commerce channel as well as the new markets IWB is opening (China and the US) which are the largest in the world, makes us think that they are going to continue growing in the future at a higher growth than its competitors. As a reference, the CAGR in the wine sector is around 1.7% as it is a mature market.

IWB is using its wealthy Balance Sheet to return the money to its shareholders, both via buybacks (€3MM programme) and dividends (€0.5/share). Moreover, IWB acquired a Swiss distributor and producer (Raphael Dal Bo) last year and it is expected that it takes advantage of M&A in the current environment. It is noteworthy to point out that economies of scale are quite important in this sector

IWB will continue to invest heavily in e-commerce to follow up on the purchase of the Svinando platform in 2018. In addition, this chain has the additional advantage that virtually eliminates credit risk. 

Italian wine brands wholesale revenue by country
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IWB Economics

Since IWB debuted in the stock market in 2015, the company has been reducing its fixed cost. It has diminished the S&G expenses and outsourced part of the bottling. Consequently, its EBITDA margin has increased considerably in the last five years. It is not going to be easy to continue this rate in the coming years. However, IWB will continue taking advantage of the economies of scale – by M&A and e-commerce. So, our view is that this margin can reach 12.5-13% in 2025. We also estimate an increase in the revenue in the coming years, from €204MM to €220-230MM in 2025 as a consequence of the impact of e-commerce.

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Conclusion

Our investment idea in IWB is focused on three factors:

  • It is undervalued compared to its peers (EV/Sales is 1.1 vs 1.8 the rest of the sector). We understand some difference as the EBITDA margin is on average 300 bps lower – which it is a direct consequence of outsourcing the production & diminishing the risks. 
  • The management team is probably the most important asset of the company. They decided to do things differently from the rest of the industry and they are achieving the targets.
    • As a consequence of both, the last three years the company has been buying back shares and increasing the dividends
  • The company has a competitive advantage thanks to being pioneers in e-commerce and the experience of one of its two original companies in the sector.

Note: Financial models and more information will be posted once we talk with the company

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Annex

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