Small Cap Value Report (16 Nov 2015) - MJW, GTLY

Monday, Nov 16 2015 by

Good morning!

Business as usual today, after the appalling weekend terrorist attacks in Paris. The best thing we can all do is just carry on as normal, and not let the scum concerned have the slightest impact on financial markets. After all, panic selling after a terrorist attack is helping to do their job for them.

Mello Beckenham

A quick reminder that this excellent, and very friendly monthly investor event is happening tonight. The company presenting is micro cap Creightons (LON:CRL) - a minnow cosmetics company. Unusually, for a £5m market cap company, it is consistently profitable, although I note there isn't a dividend.

Unless there is multibagger potential upside, then personally I don't tend to take an interest in stocks this small, as I've been caught out too many times with liquidity problems - you can't sell if something goes wrong, and the spread can be eye-wateringly bad if you want to trade in any decent size. Also the price can spike up or down, if there is a sudden surge in investor interest, or everyone rushing to exit at the same time on bad news. So care needed here I think.

That said, it's always interesting to meet potentially up & coming small companies, and management made a reasonably good impression when they presented at Mello Peterborough some time ago.

Details for those wishing to attend are here. I understand that the prospect of free samples is already attracting a more gender-balanced crowd than usual!

Majestic Wine (LON:MJW)

Share price: 299p (down 3.5% today)
No. shares: 70.7m
Market cap: £211.4m

I hadn't realised that the share price of this wine retailer had fallen back so much, after a big, apparently speculative, surge in price starting in Apr 2015, on a change of strategy & CEO. A big acquisition was made, of an internet business called Naked Wines, and unusually, the acquired company's CEO became the overall group CEO, if my memory serves me correctly. The acquisition seemed a bold move, given that Naked Wines was loss-making at the time.


I wrote an article here on 15 Jun 2015, reporting on the company's rather lacklustre full year results to 30 Mar 2015, and was unconvinced by the strategy change. Note that, at the time, the company said that short term…

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Majestic Wine plc is a wine retailer. The Company acts as a holding company for its subsidiaries. The Company is engaged in the retailing of wines, beers and spirits. The Company operates through four segments: Retail, Commercial, Naked Wines and Lay & Wheeler. The Retail segment is a customer based wine retailer, selling wine, beer and spirits from stores across the United Kingdom, and online, and also incorporates the Company's French business. The Commercial segment is a business-to-business wine retailer selling to pubs, restaurants and events. The Lay & Wheeler segment is a specialist in the wine market and also provides cellarage services to customers. The Naked Wines segment is a customer funded international online wine retailer. Its subsidiaries include Majestic Wine Warehouses Limited, Lay & Wheeler Limited, Les Celliers de Calais S.A.S., Majestic Wine Employee Share Ownership Trust Limited, Naked Wines International, Inc. and Vinotheque Holdings Limited. more »

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Gateley (Holdings) Plc provides commercial legal services together with complementary non-legal services, including acting as independent trustees to pension schemes and also provides specialist tax incentive advice. Its segments are Banking and Financial Services, which is engaged in the provision of legal advice in respect of asset finance, banking and corporate recovery services; Corporate, which is engaged in the provision of legal advice in respect of corporate, family, private client and taxation services; Business Services, which is engaged in the provision of legal advice in respect of commercial, commercial dispute resolution, litigation, regulatory, shipping, transport and insurance services; Employees, Pensions and Benefits, which is engaged in the provision of legal advice in respect of employment and pension services, and Property, which is engaged in the provision of legal advice in respect of construction, planning, real estate and residential development services. more »

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  Is LON:WINE fundamentally strong or weak? Find out More »

26 Comments on this Article show/hide all

danyou 16th Nov '15 7 of 26

Paul. Thank you for your continuous hard work! Will you be writing up your visit to Boo?

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simoan 16th Nov '15 8 of 26

In reply to post #111738

I think there's possibly a gap in the market for a more specialist shop for wines, with a wider range than the supermarkets, perhaps? Also, Majestic Wine (LON:MJW) seem to be making headway online too.


The trouble is when it comes to wine retailing in the UK, there is no gap in the market. Majestic suffer from a uniquely poor proposition with big cold barn like shops in terrible locations and competition from local independent wine retailers as well as the supermarkets. Take Cambridge for instance, the Majestic barn is in a uniquely terrible location on Newmarket Road which is practically impossible to get to and has only a handful of parking spaces when you do. I wouldn't bother driving there in a million years! For competition where they make their money in midrange wines, as well as M&S and Waitrose, they have two of the UK's best independent wine retailers; Cambridge Wine Merchants and Noel Young. I should imagine this scenario is repeated around the country at most Majestic shop locations.

And when it comes to on-line, many would be Majestic customers for mid-market wines are probably going to be members of the Wine Society who have a uniquely brilliant range of wines at all price points, a great on-line setup with free UK delivery, and because they are non-profit making they can blow MJW clean out of the water on price.

Don't get me wrong, I think the new CEO could possibly turn things round but there's no sign to me yet that he has livened up their marketing as I expected he might, and it's still very early days judging by today's announcement. Feeling the way I do about Majestic's retail wine offer and the competition they face, I could never bring myself to invest, particularly as I believe they overpaid for Naked Wines, there's no dividend until 2018, and as ever, there's plenty more fish in the sea...

All the best, Si

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John Eustace 16th Nov '15 9 of 26

I'm a customer of both Majestic and Naked. I think it's been a case of the internet hype winning over a solid traditional offering. I like the Majestic staff and customer service, but it was last decade's concept.
Ryan Gormley said that it's really hard to find a way to distinguish your offering in a very crowded, competitive, and efficient UK wine market. That's why he went with the Naked internet concept and has been very successful in generating scarce growth. Majestic need some of that to stay relevant and Naked will benefit from Majestic's buying expertise. But it's a tough market and Mr. Gormley has said it's a three year turnround plan for the combined business. I would want to see more evidence of that working before investing.
Meanwhile for the wine drinkers, the Wine Society is the best option. It's a member owned co-op so no investing or carpet bagging opportunities, but a membership makes a good Christmas present!

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Paul Scott 16th Nov '15 10 of 26

In reply to post #111747

Hi danyou (and others),

Yes I will be doing a write-up on my Boohoo.Com (LON:BOO) visit, but have been busy with other things, and stopped off en route home to visit family. So am on the Virgin high speed train back to London as we speak, using their very efficient WiFi (cost £5 for 75 mins). Now, if only all trains had WiFi, I think we would add 1-2% to GDP instantly, with all the extra productivity from that time being used productively.

Regards, Paul.

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grumpy5 16th Nov '15 11 of 26

With your retail background, I am v surprised you are so sanguine about the outlook for MJW. Gormley is trying to weld two very dissimilar businesses, and in my experience, retail mergers of this scale rarely lead to success in the short-term. AFAIK Gormley has no experience of leading a plc. Majestic is a very mature concept in the UK. Its French business has never produced an adequate ROI. These results show very poor cash generation, but are long on 21stC management bull s**t..

As said by a few above, Majestic in the UK has no winning USP. Its move to single bottle purchases is, in my view a sign of desperation, and must be accompanied by an operating cost penalty. Like many other middle class wine lovers, I am a very satisfied member of the Wine Society, and Majestic rarely does anything to surpass them.

Disclaimer: I am short, and wish I had shorted them earlier!

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billytk 16th Nov '15 12 of 26

In reply to post #111759

"Now, if only all trains had WiFi, I think we would add 1-2% to GDP instantly, with all the extra productivity from that time being used productively."

You make the assumption that people out of the office given WiFi would use it for productive purposes! LOL

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grumpy5 16th Nov '15 13 of 26

PS look at Gormley's LinkedIn profile, and judge whether you want him running your business!

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Paul Scott 16th Nov '15 14 of 26

In reply to post #111768

Hi grumpy5,

I had a look at Gromley's LinkedIn profile, and don't see anything untoward about it.
He seems just the sort of chap you would want, to come in with new ideas, and modernise a business.

As long as he's not permanently either hungover, or plastered on wine, during office hours (what he does in his own time, is his own business!), then I don't see the problem.

Regards, Paul.

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lancschap 16th Nov '15 15 of 26

Mmmm. I can't see why removing the 6 bottle restriction is likely to have any substantial benefit. Presumably requiring a minimum purchase coupled with locating shops in cheaper locations was part of the original business model. Is removing this requirement a sign of failure? How is the Majestic model now different from a standard retailer? I would agree with simoan re making a special trip for a bottle and can't see many people making a special trip for a single bottle or two unless a wine reviewer has given a particular bottle a mind-blowing review. Otherwise why would you do that over a supermarket purchase? Also agree with simoan and others about the Wine Society which can be summarised as saying they are a quality outfit.

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simoan 16th Nov '15 16 of 26

In reply to post #111768

PS look at Gormley's LinkedIn profile, and judge whether you want him running your business!

I don't see what's wrong with it to be honest? In fact it's pretty refreshing rather than the bland overblown CV that most corporate types would put on their LinkedIn page. In fact, given the nature of Majestic's shop-based employees I can see them warming to a slightly more irreverent management style, as opposed to the coldness of the previous head office regime.

You have to remember his background is with Richard Branson having worked within the Virgin empire for some time. You don't get to do that if you're a fool. There's no doubting the guy "walks the walk" and is seriously entrepreneurial. His team at Naked understand wine retailing and effective marketing to the British middle class as well as anyone. So much so that after a very brief exchange on TMF he once proclaimed that I was not his target market! He wasn't wrong :-)

I think he has a fair shot of turning things around but it will take a long time and this is probably the toughest job he's had to date in wine retailing, particularly given the competitive environment that Majestic face.

All the best, Si

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james8 16th Nov '15 17 of 26

In reply to post #111792

"seriously entrepreneurial"

When Naked was taken over by Majestic, Gormley converted 96% of his Naked shareholding (29%) into Majestic shares.

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simoan 16th Nov '15 18 of 26

In reply to post #111813

When Naked was taken over by Majestic, Gormley converted 96% of his Naked shareholding (29%) into Majestic shares.

I'm sorry but I don't see what point you are trying to make? This surely would have been a condition of the terms demanded by Majestic for buying Naked and his appointment as CEO. 

All the best, Si

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Cisk 16th Nov '15 19 of 26

In reply to post #111789

Ian, living in central London it's slightly absurd to have a 6 bottle minimum for central London stores when there's no parking and a lot of your business is walk-in off the street.

So I welcome this change and it would encourage me to call in on the way home to pick up a bottle or two, that I can carry home.

That being said, have just taken advantage of their third off champagne offer, and they deliver free.

Unusually they don't make you specify a slot when you make the order, but contact you within a couple of days to arrange delivery. Let's see how well that goes...

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james8 16th Nov '15 20 of 26

In reply to post #111819

It certainly shows that he's got plenty of 'skin in the game' and I (maybe wrongly) would have thought that he could have negotiated a larger % in cash.


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dahokolomoki 16th Nov '15 21 of 26

For me, Majestic removing the 6 bottle minimum is long term suicide. They succeeded purely on brand positioning - "we offer good wines, at value prices" because we are located in random locations and you have to buy in "bulk".

By moving to a one bottle minimum, this brand positioning disappears, and all they have is... Nothing.

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rhomboid1 16th Nov '15 22 of 26

I've spoken at length to management at my local Majestic, they say abolishing that 6 bottle min. was not a big deal, very few folk buy single bottles but they no longer feel affronted by being turned away as by definition they were new potential customers just dropping in for bottle to take to a party etc etc.

The point of sale material has changed , the shops now are less cluttered and are working with reduced inventory depth due to more efficient replenishment . Rowan has been on a tour around the shops and seems to have made a very positive impression , they are also seeing a lot of Naked wine customers who pick up their delivery from the branch rather than than chancing the courier service. Some of them are picking up additional wine in store.

The big change is that they are selling a lot more of their own label products that I guess have higher margin.

All in all I'm still on the sidelines as to the investment case but the staff are very good and I'll be keeping it on my watch list .

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John Eustace 16th Nov '15 23 of 26

In reply to post #111822

The stores have their own vans so it's pretty easy for them to schedule things with you to give a personalised service, unlike a centralised distribution model.

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Paul Scott 17th Nov '15 24 of 26

I've never been into a Majestic Wine (LON:MJW) shop in my life. Yet I have bought industrial quantities of wine, both for myself, and my family & friends, who I pretty much shower with wine. So to my mind, if Majestic were simply to get in touch, and point out that we have a shop nearby, and give me a nice introductory deal, then they might just pick up a client with a lifetime value of quite a lot of bottles of fizz!

So I think it makes far more sense to stop opening new shops, and concentrate on getting good customers into your existing shops.

I'm sure I've told this story before, but when I had a big house in Southampton, and lots of money, I used to get Tesco & Waitrose to deliver wine. I only wondered if I should cut down, when the delivery drivers for my usual monthly delivery of fizz started asking me when the wedding was? Or when the neighbours started refusing to take in my wine deliveries when I was out, because they "didn't have enough room". What a lame excuse, I ask you!

Cheese, PP!

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Paul Scott 17th Nov '15 25 of 26

Majestic seem to make a pretty good overall profit margin - better than the supermarkets overall anyway.

So for all the wise guys who say that Majestic is a tired 1990s format, it seem to make a better margin than their competitors who under-cut them. That says to me it's not a bad business - if you make a better profit than your supposedly aggressive competitors. Who's the mug? The company that sells products for negligible profit at a cheap price, or the company that makes a nice profit margin by having some point of differentiation? Sod it, who cares about differentiation? Profit's a profit. MJW seems to be pretty resilient on profits, which makes it an interesting business. Never mind what the armchair strategists (including myself!) think. Today's figures said to me it's a pretty resilient business, with nice internet upside. I bought a few today, after a good think.


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gus 1065 22nd Mar '16 26 of 26

RNS out for Majestic Wine (LON:WINE) this morning reporting FYTD (from March 2015) sales for Naked Wines has just gone through £100m. Seems the Internet crowd funding co-op approach for small wine producers is gaining critical mass.

Shares have had a good run too since Paul's write up last November from 300p to current 432p. Maybe worth another look.


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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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