AVG : a cheap wine stock

Australian Vintage Group is a typical recovery story, following the change of top management at the end of 2019.
The company is now delivering :
- during H1 21, they published strong results (+ 105 % due to better sales, better product mix and lower costs),
- today, they announced the payment of a special dividend of 8.5 c and the reduction of 10 % for its number of shares.

This may look surprising as the company is mainly a wine exporter.
And of course contrasts with the problem of other Australian wine makers in China, in particular TWE.

These good results for AVG can be explained by several elements :
- small exposure to China (only 2 % of their sales),
- large exposure to the UK where they are doing well (apparently mainly due to their exposure to the large supermarket chains),
- focus on 4 key brands which are doing well on a regular basis,
- progressive withdrawal from the low margin bulk wine market,
- good control of their costs after several years of major investments.

In term of valuation, the stock has already benefited from some re-rating since the end of 2019.
However, it has probably the potential to further rerate looking at the rather low valuation based on PE, free cash flow yield and P/B.
If the company can continue to expand sales/margin, the stock looks cheap with a dividend yield of 3.5 % (based on last year dividend) and a PE of around 10x.