Claudia Balea Bogdan C l cean - CFA Institute · Sustainable expected growth 4.60% 8.90% 3.70% 3.20% 4.10% Romania Poland Czech R. Slovakia China Revenue growth by category, 2019-2023

BSE: WINE

PURCARI WINERIES PLC

Romania

Claudia Balea

Bogdan Călăcean

Cristina Bivol

Marius Semeniuc

CONSOLIDATED BUSINESS

MODEL

FAVORABLE MARKET POSITION

CONSISTENT FINANCIAL

PERFORMANCE

UPSIDE POTENTIAL

MITIGATING RISKS

Wide geographicaldiversification

Outperforming team

Differentiating winemaking process

VITICULTURE

WINEMAKING

MARKETING

PROCESSING

STORAGELOGISTICS

BOTTLING

RETAILERSDISTRIBUTION

SALES E-COMMERCE

CONSOLIDATED BUSINESS MODEL


CONSISTENT FINANCIAL PERFORMANCE

UPSIDE POTENTIAL MITIGATING RISKS

Leveraging an optimized value chainBUSINESS

4% of global grape

cultivation

Concours Mondial de Bruxelles

Challenge International du Vin Bordeaux

IWSC Decanter

50

26

23

1514

7

Increasing number of International prizes won

Source: Company data, team analysis

Europe

Romania, Republic of Moldova, Poland, Ukraine, Czech Republic,

Slovakia

Babeș-Bolyai University of Cluj-NapocaGeographical coverage

Europe

82%

Asia

7%

Others

11%

Asia

China, South Korea, Japan

Others

USA, Canada

WINE - Well-balanced, Intense, Natural, Exquisite

BUSINESS



UPSIDE POTENTIAL MITIGATING RISKSCONSOLIDATED BUSINESS MODEL

Geographical coverage

Europe

82%

WINE - Well-balanced, Intense, Natural, Exquisite

BUSINESS

Republic of Moldova 23% Sales

Romania 41% Sales




Brand % of Sales

40%

29%

16%

15%

Eugen ComendantCOO

Founded the Group in 2002Over 35 years of experience in wine industry

Victor Bostan

CEO, Founder, Executive DirectorMonica Cadogan

Non Executive DirectorVictor Arapan

Executive Director

Vasile Tofan

Chairman of the board, Non Executive Director

Neil McGregor

Non Executive Director

86.1%

BoD structure

90%

Board skills and experience

100%

Conflicts of interests

0%

Protection of Shareholder Rights

100%

Committees

100%




The company`s biggest assetBUSINESS


MODEL



PERFORMANCE

UPSIDE POTENTIAL

MITIGATING RISKS

International growthstrategyFocus on

premiumizationStrong competitive

position


Outperforming team


Sustainable expected growth

4.60%

8.90%

3.70%3.20%

4.10%

Romania Poland Czech R. Slovakia China

Revenue growth by category, 2019-2023 CAGR

Wine Spirits Beer

200

300

400

2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F

Worldwide wine revenue (billion USD)

INDUSTRY




Source: OIV, team analysis Source: Euromonitor, team analysis

Leader in terms of profitability and growth




Recaș

Cotnari

Jidvei

Purcari Group

Vincon Vrancea

Zarea SA

Mk. Share in Romania, 2018

Other SMEs and hobbyists

Vincon

Vrancea

Jidvei

Purcari

Group Recaș

Zarea SA

Cotnari

0%

5%

10%

15%

20%

25%

30%

0% 10% 20% 30% 40%

Pro

fit

marg

in in

20

18

Sales CAGR,'15-'18

INDUSTRY


24.8%

Source: Ministry of Finance, team analysis

Direct competitors in Romania by 2018 sales

Source: Ministry of Finance, team analysis

67%

14%

7%

12%

Beer

Spirits

Don’t consume alcoholic

beverages

Wine

Alcoholic

beverages

preferences

Number of

respondents

841

36%

49%

14%1%

Price

category

<RON 30

RON [30;60]

RON (60;120]

>RON 120

259

223

220

185

145

132

98

94

74

22

OTHER

CRAMELE RECAS

PURCARI

JIDVEI

COTNARI

CRICOVA

CRAMA CEPTURA

MURFATLAR

CHÂTEAU VARTELY

BOSTAVAN

Romania - Which wine do you consume more often?

109

75

74

57

46

39

37

33

28

PURCARI

CRICOVA

OTHERS

CHÂTEAU VARTELY

BOSTAVAN

FAUTOR

APRIORI

TIMBRUS

GITANA

Moldova - Which wine do you consume more often?

Survey results - Established consumer baseSURVEY





MODEL



PERFORMANCE

UPSIDE POTENTIAL

MITIGATING RISKS


Outperforming team




position

Long-run profitability

Strict cost management

Healthy growth strategy

Delivering on the promise

Strong EBITDA growth2016-2019

Double digit revenuegrowth2016-2019

Skyrocketing Net Profit2016-2019

Pillars supporting future profitability




FINANCIALS


Debt to Equity

4.0

26.5%

0.6

27.8%

Key Financial Ratios

Earnings per share (RON/sh)2.0

31.8%

0.6

29.7%

FY 2024FFY 2019A

Operating margin

Return on Equity





FINANCIALS

FORECASTED REVENUES INCREASE 2019A-2024F

14.6% CAGR

FORECASTED OPERATING PROFIT INCREASE 2019A-2024F

1310 bps

0%

10%

20%

30%

40%

50%

60%

-

50

100

150

200

250

300

350

400

450

2016A 2017A 2018A 2019A 2020F 2021F 2022F 2023F 2024F

Mill

ion

s

Revenue (LHS) Revenue Growth YoY (RHS)







FINANCIALS


14.6% CAGR

FORECASTED EPS INCREASE 2019A-2024F

14.9% CAGR

0%

5%

10%

15%

20%

25%

30%

35%

0

1

2

3

4

5

2019A 2020F 2021F 2022F 2023F 2024F

Basic and diluted EPS (RON/sh) (LHS) EPS growth YoY (RHS)



Debt to Equity

4.0

26.5%

0.6

27.8%



31.8%

0.6

29.7%

FY 2024FFY 2019A

Operating margin

Return on Equity





FINANCIALS


14.6% CAGR

FORECASTED ROE INCREASE 2019A-2024F

77 bps

20%

21%

22%

23%

24%

25%

26%

27%

0

50

100

150

200

250

300

350

400

2019A 2020F 2021F 2022F 2023F 2024F

Mill

ions

Total Equity (LHS) Return on Equity (RHS)



Debt to Equity

4.0

26.5%

0.6

27.8%



31.8%

0.6

29.7%

FY 2024FFY 2019A

Operating margin

Return on Equity


MODEL



PERFORMANCE

UPSIDE POTENTIAL

MITIGATING RISKS

Revenue growth

Favorable domestic perspectivesStrong brand recognition





Outperforming team




position

DCFRON 24.72/sh

Relative ValuationRON 26.39/sh

TARGET PRICERON 25.05/sh

27.8%UPSIDE

RON 19.6/shMarch 13, 2020

BUY

27.8% Upside potentialVALUATION




20%80%

Equity value494.3

Terminal value494.9

Enterprise Value602.9

Net Debt108.5

12m TPRON

24.72/sh

Upside 26.1%

Cost of Debt 4.6%

Cost of Equity 12.5%

WACC 9.3%

Terminal Growth Rate 3.2%




DCF Yields positive upside TARGET PRICE: RON 24.72

DCF VALUATION


WINE trades at a discount to peers




PEERS VALUATIONTARGET PRICE:

RON 26.39


Source: Thomson Reuters, team analysis

9.32 9.48 10.52 11.45 11.90 13.08

16.21

46.45

AmbraSA

WINE VVTikves

ADSkopje

KtimaKostas

LazaridisSA

MasiAgricola

SpA

ItalianWine

BrandsSpA

AdviniSA

BodegasRiojanas

SA

P/E

Peer median: 12.49

2.99

6.297.77 8.33 8.42 9.05

16.67

22.12

26.56

VV TikvesAD Skopje

Ambra SA WINE ItalianWine

BrandsSpA

MasiAgricola

SpA

KtimaKostas

LazaridisSA

BodegasRiojanas

SA

Advini SA VrankenPommeryMonopole

SA

EV/EBITDA

Peer median: 8.74

Monte Carlo simulation and sensitivity analysisVALUATION




73.2%

probability of

a BUY

94.5%

probability of

a BUY

Peers Monte Carlo simulation

FCFF Monte Carlo simulation

Term

inal

gro

wth

rat

e

Weighted Average Cost of Capital

8.5% 8.8% 9.27% 9.8% 10.3%

4.0% 35.18 32.49 28.89 25.52 22.87

3.6% 32.19 29.88 26.74 23.78 21.41

3.16% 29.43 27.44 24.72 22.10 20.00

2.8% 27.48 25.70 23.25 20.88 18.96

2.0% 23.92 22.51 20.53 18.58 16.98


Target price: RON 24.72

Target price: RON 26.39

Sensitivity analysis


MODEL



PERFORMANCE

UPSIDE POTENTIAL

MITIGATING RISKS

Competitive position

Reshaping sales mix



Revenue growth



Accretive acquisitions


Outperforming team




position

1

2

4

5

2. Financing issues

1. Political risk

5. Natural risk

4. FX Risk

Babeș-Bolyai University of Cluj-NapocaNo high impact and high probability risk




RISKS


3

3. Competition Risk

6

6. Prolonged global

pandemic

Driver

Decreased sales

Mitigating factors

Developing online channels and e-commerce

Increased indoors consumption

Global pandemic spreading beyond boundaries




RISKS


Source: Bloomberg, team analysis

Global pandemic spreads more than

predicted

Feb ’20 vs Jan ’20

↑ 34% increase in online sales2020

2019

A cruise ship in Japan quarantined thousands

The WHO declared global health emergency

Other countries, including the US, confirmed cases

China reported its first death.

Chinese authorities treated dozens of cases of pneumonia unknown cause.

Online Sales Baseline

(transactions)

150%

100%

9 Dec 23 Dec 6 Jan 20 Jan 3 Feb 17 Feb 2 Mar

EUR/RON – Exchange rate

4.0

4.3

4.6

4.9

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Driver

RON depreciation Direct impact on net profit

Mitigating factors

Offsetting borrowings with cash collected

Balanced net profit margins

Forex headwinds weigh on Group`s earnings




Source: National Bank of Romania, company data, team analysis -

10

20

30

40

50

2016A 2017A 2018A

Mill

ions

EUR/RON and MDL USD/RON and MDL

Net profitNet profit

Net profit

RISKS

Impact of 5% appreciation of USD and EUR against RON and MDL on Net Profit

Average growing season temperatures for different grapes varieties

Cool12.5 - 15°C

Intermediate15-17°C

Warm17 – 19.5°C

Hot19.5 - 22°C

Pinot Gris

Riesling

Pinot Noir

Chardonnay

Sauvignon Blanc

Tempranillo

Merlot

Malbec

Syrah

Table Grapes

Cabernet Sauvignon

Driver

Natural shifts in temperature frontiers

Unable to produce a variety of grapes

Mitigating factors

Geographic diversification of

production platforms

Adapting production and sales mix

Climate change is reshaping the wine-making world




RISKS


Source: OIV, team analysis

Babeș-Bolyai University of Cluj-Napoca

Wine has been a part of our civilization for over 8000 years, and although society will not be driving cars in twenty or thirty years from now, we will assuredly be drinking wine”— Zachary Elfman“


MODEL



PERFORMANCE

UPSIDE POTENTIAL

MITIGATING RISKS


Outperforming team




position




Revenue growth


Competitive position

Reshaping sales mix

Accretive acquisitions

Target price25.05 RON/shBUY 27.8%

UPSIDE

Documents

Claudia Balea Bogdan C l cean - CFA Institute · Sustainable expected growth 4.60% 8.90% 3.70% 3.20% 4.10% Romania Poland Czech R. Slovakia China Revenue growth by category, 2019-2023