bought MGW a couple of years back before the merger and enjoyed...

bought MGW a couple of years back before the merger and enjoyed a good run, I bought it because fundamentally it was the best g wine stock in it's sector and growing fast, nothings changed. it's has dropped over 20% in the last 6 months, I'd say primarily due to the wine industry as a whole being dragged down because of Southcorps performance, heavy discounting in the sector due to over supply of grapes last year and the exchange rate.

What do I think of these factors? Well the only thing I think hurts MGW is the exchange rate as it is a big exported and it will affect its margins but it won't affect its profits as the export market is growing faster than it expected. The heavy discounting...love it, why, cause MGW has probably been the catalyst as if flogged off it's relabelled simeon wines and saturated the market with it's brands. I know of a heap of clubs n pubs where partons are force fed the stuff with75% of wine on the wine list being MGW's. The fall out from this is the majority of wine companies are putting out profit downgrades because of heavy discounting in the industry...but MGW isn't complaining about it, they are enjoying the marketing opportunities.

MGW has had and is still forecasting top notch EPS of over 25% and their PE is below 11 with the sector average above 15??? This stock is still falling but I can't see that happening much longer and when it goes up it usually goes up quick.

Aspect has a very good coverage on MGW and it is worthwhile reading it .This is a recent interview by Corporate File,
Also check out its Fundamentals and more at : http://investor.ninemsn.com.au/investor/Shares/research/information.asp?code=mgw
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Open Briefing. McGuigan Simeon Wines. MD on Outlook

Record of interview :
corporatefile.com.au
McGuigan Simeon Wines Limited recently reported that its total crush for the 2003 vintage was 13 percent below expectations. As a result, you now expect net profit for the full year ending June 2003 to be about 6 percent below previous guidance of $34.2 million but 25 percent above last year’s combined normalised result for the two companies pre-merger. How have you been able to sustain this level of growth in what has been a tough operating environment?


MD Brian McGuigan
Part of our growth relates to exports, which have continued to surge ahead, particularly in the crucial UK and US markets, but also in Canada and New Zealand as well. The booming exports have helped reduce the impact of the lower 2003 vintage.


What also sets us apart from other wine companies is that we have a number of strings to our bow. We’re sellers of bottled wine of course, and we’re well on the way to establishing our labels in the national and international markets, but we’re also a compilation of businesses such as contracting, vineyard management and marketing. Our spread of interests across the wine industry gives us greater flexibility and is a strength.


corporatefile.com.au
To what extent will the lower vintage affect your earnings expectations for future years?


MD Brian McGuigan
Our total crush of 173,500 tonnes was 25,700 tonnes below our expectation. A significant reason for this decrease was that contract processing, which we do for third parties, was down 14,300 tonnes or 48 percent. The volume of grapes we purchase and make into wine was down by only 11,400 tonnes or 7 percent. We also purchased some $15.0 million of wine, so in terms of meeting 2004 customer demands, we’re in a reasonable position. Of course the lesser winery throughput will impact production costs per litre and therefore margins.


corporatefile.com.au
The new profit forecast is approximately $2.1 million below your original. To what extent does the lowered forecast relate to $3.5 million of expected savings from the merger not being achieved?


MD Brian McGuigan
We haven’t pushed as hard to achieve the savings as we didn’t wish to place undue pressure on our core business and we weren’t prepared to run any risks. That will stand us in good stead in the long term. The savings from streamlining will come, but it’s more likely to be over the next 18 months. We expect 85 percent of the savings to be in place by the end of 2004 and we’ll maximise them in the 2005 financial year. For 2003, we expect at best to achieve one third of the planned savings.


corporatefile.com.au
What level of demand have you experienced for your bulk products and how will this sector of the business be impacted by the lower 2003 vintage?


MD Brian McGuigan
International, and to a lesser extent local, demand has continued to grow, so of course with less wine around, the bulk market is showing signs of improving. The lower vintage can only improve the bulk wine market.


corporatefile.com.au
Will the intake from the 2003 vintage provide adequate stock for the bottled wine business to achieve your medium-term growth targets?


MD Brian McGuigan
Yes, we’ve been able to tuck away enough, including the purchases from third parties, to make sure our future sales are protected, though there will be some industry pressure. I’m concerned there’s an emerging shortage across the industry of white varietals such as Chardonnay, Sauvignon Blanc and Semillon, as well as Shiraz. Part of the dynamic of the wine industry is that you must continually adjust your varietal balance to make sure it’s in keeping with what the market demands. Certainly there hasn’t been enough emphasis on developing more white grape and Shiraz vineyards over the last three or four years, during which time vineyard development has really slowed down.


corporatefile.com.au
The rationale for the McGuigan-Simeon merger was to provide earnings stability through greater product diversity and better production efficiencies. Is the merger delivering to your expectations in the current environment?


MD Brian McGuigan
We’re an agricultural business and the issue of our lower earnings expectation is the result of something outside our control – a lesser vintage. That aside, the economies of scale and the capacity of the merged company to compete in the world market have certainly fulfilled our expectations. We’re at the forefront of commercial wine production in this country and we’re very aware of the need to continuously seek efficiencies to ensure we stay there.


The streamlining opportunities of the merger remain available and the financial benefits will continue to come through over the next six to eighteen months. We can make further improvements to ensure we’re very much a competitor on the world stage.


corporatefile.com.au
To what extent have management practices within the bulk wine business changed since the merger?


MD Brian McGuigan
Management of the bulk wine business has not changed. The sale of bulk wine is a very important part of our business and will continue to be so.


corporatefile.com.au
You’ve indicated that your exports have remained strong. Can you comment on trading conditions?


MD Brian McGuigan
We’re very pleased to say our export business is doing better than Australian wine exports generally. And while we’re concerned about the potential negative of the exchange rate, we’re continuing to work aggressively to build on the bridgehead we’ve developed. We’re very confident about the future. We’ve got two new products in the US market that are going very well. We’ve continued to develop our relationships with our trading partners overseas. So all in all we’re very optimistic about our export results for this year and running into the next financial year.


corporatefile.com.au
How has the heavy discounting by some industry players impacted on your strategy?


MD Brian McGuigan
We’ve continued to hold the line on the prices of our leading brands in the UK and particularly in the US, and we’ve used some of the Simeon production capacity to introduce new innovative products that keep us competitive at lower price points. They’ve been a success and more than cover any lack of growth in our core brands.


Margins on these products might be lower than our core brands, but they’re fine given the lower cost of production of the Simeon wineries. It’s one way the merger has worked for us in the short term and will of course be of great benefit in the long term.


The conversion from bulk into packaged product immediately brings home a much better gross profit. And if you do it well, which I believe we have, it also establishes market recognition for the products and therefore an on-going market franchise. In effect, we’re now doing what the majors have been able to do – tailor products for more segments of the export markets.


In terms of our customer base at a retailer level, we’ve found a great deal of support from not only the independents but also the supermarkets, particularly in the UK.


corporatefile.com.au
You’ve indicated that domestic trading conditions are improving. Is this a sign of a shift in the industry to more rational pricing and promotional practices?


MD Brian McGuigan
In the last three months we haven’t seen the ridiculous discounting we saw over the previous 12 or so months. We’re seeing more stability and the emergence of far more structured pricing arrangements.


corporatefile.com.au
Your cash flow from operations before interest and tax was negative $16.8 million in the first half. What’s the outlook for operating cash flow for the full year?


MD Brian McGuigan
In the first half, our cash flow deteriorated because of costs related to the unusually big 2002 vintage. In the second half we expect to have the positive in-flows of cash from the contract winemaking we do for our customers.


Certainly, as we grow our business the need for working capital increases. This is particularly true for export sales, which are growing significantly. We continue to look to the sale and lease-back of the $130 million of vineyards held on our balance sheet. That will allow us to pay down some of our debt and focus our resources on stock and debtors, which to my mind is the most appropriate use of funds for a public wine company.


corporatefile.com.au
Thank you Brian.