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Mid Cap Darlings – Distell Group Holdings


Mid Cap Darlings – Distell Group Holdings

Published Date: 2019-05-07 | Source: INCE|Community | Author: Sifiso Skenjana

Mid Cap Darlings – Distell Group Holdings

They have taken care of all the generations at the best times of their lives. They have brought the young ones Autumn Harvest, 4th Street, and Paarl Perle when the rand was low. They have warmed up the oldies with Sedgwicks Old Brown Sherry and Klippies and Coke. They have been the subject of any wedding and birthday toasts with JC le Roux. And kept it dry yet drinkable with Savanna and Hunters Dry. Yes, we are talking about Distell Group.

Business Model: Distell is a leading producer of spirits, wines and ready-to-drink (RTD) beverages, and the world's second-largest producer of ciders. The group generates 75% of its revenue in South Africa, 15.6% from Rest of Africa, and 9.4% from its International Business. Of the total revenue, 37% is attributable to Ciders and RTD, 36.2% to Spirits and 26.8% to Wine.

Macro Landscape: The alcohol industry is faced with a number of interesting trends that will likely influence consumption patterns and revenue opportunities for Distell. The spirits and beers markets is finding a growing trend towards craft beverages and experiential drinking, and hence some really interesting innovation particularly in the gin market and growing whiskey cocktail variants. Whiskeys are still interesting for consumers as they are the healthier option. Sustainability in the sector has become increasingly more top of mind for consumers and hence the growing popularity of organic wines globally.

Results (Interim ended December 2018): The ciders business continued seeing volume and revenue growth of 1.2% and 8.3% respectively. Spirits volume and revenues grew 3.1% and 9.2%. Whiskey continued to outperform with volume growth of 14.7% and revenue growth of 19.4% with Bain being the strong driver in South Africa. Wines, however, bucked the trend a little from a volume perspective with a decrease of 4.3% but managed some revenue growth of 4.3% despite.

Growth Prospects: Alcoholic beverages are generally known as "sin products", so we know the government will generally increase sin taxes above inflation every year as they did in this year's budget speech. This coupled with a low economic growth environment means that consumer incomes are under some strain and poses a near term risk for earning for Distell. However, the company has a diversified earnings base across products line which generally reduces its vulnerability to changes in incomes.

If this sippy de sipp stock tickles your throat and quenches your thirst, purchase your shares in a few easy steps.

About The Analyst: The Mid Cap Darlings is brought to you by the Awkward Economist - Sifiso Skenjana. He has a breadth of experience in portfolio management, economic research and investment strategy and management consulting. He is founder and financial economist at AFRA Consultants. He is currently pursuing his PhD.

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