Naked Wines (Naked Wines (LON:WINE)) is the largest DTC wine merchant in the US, UK, and Australia. It was a small cap darling post-pandemic due to its obvious appeal during periods when consumers were limited in their drinking/dining options.
As restrictions have eased, the company has experienced some decline in its operating metrics, but it has also been beset by a number of issues not directly related to its trading performance. The combination of these factors has led to a 90%+ decline in its share price and it is languishing at a price which I believe offers excellent risk/reward, with a near-term catalyst for 100% stock price appreciation.
Naked Wines reported its full year results on 23 June 2022. Results were broadly in line with expectations, which the company had set out in a trading update in April 2022. The stock price going into results was c.300p, having fallen from 850p in Fall 2021, as markets declined generally, and as expectations for DTC pandemic winners also declined. Then the following happened:
1. The outlook statement in the full year results pointed to a difficult year of trading and a pause in the company's growth trajectory. The outlook statement arguably merited some re-rating, however, buried in the results was a note in the going-concern opinion that the Company had taken out a new credit facility, secured against its US inventory and that facility had certain covenants, one of which the company was close to tripping. The facility was closed in March 2022, prior to the Company's April trading statement, but not mentioned in that statement. Panic selling set in and the stock closed the week at c.150p, which is around the level that would be recovered in a liquidation, reflecting the new solvency concerns.
2. The Company proceeded to sack its CFO, hanging the blame for the handling of the facility on him.
3. At the end of August, Pratham Ravi, an analyst of Punchcard Capital LP (Norbert Lou's fund and 2nd biggest shareholder) was invited to join the board. He accepted. 2 weeks later, Pratham resigned, and the Company issued a rushed statement stating that it was considering its operating and financial plans and would update on these shortly. More people smelled fire and the stock price fell another 50% over the coming weeks to its current level of c.78p.
4. The Company approached…
