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Consensus community valuation
$0.045
Average Intrinsic Value
50%
Undervalued by
Active Member Straws
#Bear Case
Last edited 2 months ago

Thesis

Passionate, talented, hard-working CEO who’s motives and incentives are modestly aligned with shareholders’ and has a proven track record in the wine industry.
Base salary $250,000/yr and “The Board may, in its absolute discretion, elect to provide an annual bonus of up to an amount equal to 25% of the base salary.”
8.23% ownership with potential to reach up to 18.3% with performance shares.
When talking about the company he uses “we” vs “I”.

Strong, experienced management team ~2.5% ownership.

Strong company culture

Strong tailwinds both for wineries to use company’s service as well as customers to shop online

Employed new infrastructure opening a NDC between NSW and VIC – anticipating growth?

Are a first mover, highly scalable, have network effects and should have high switching costs in the future

Opens up new path to market for boutique suppliers of wine, beer and spirits (and even vinegar and olive oil) and is agnostic allowing them to deal with any and all of Coles, Woolies, Metcash – serves a number of customers across economies and markets

Provide a solution to suppliers reducing their costs, simplifying their admin and allowing them to gain exposure and build relationships with their customers

Strong balance sheet with minimal to no debt

May require a capital raise soon with approx. 2 Qs of cash flow

Red Flags

The company is getting pumped hard, doubling in price in 1 month, with no substantial explanation

Company has released 6+ company updates in the past 2 months to notify of mostly immaterial and repetitive items such as orders processed up, new customers on board (there are 2,500 wineries in Australia, 1-5 new wineries signing up is insignificant), CEO did a podcast, opening distribution centre etc

Shareholders have been diluted by 30% in the past year; consider there are over 1 billion shares outstanding.

Appendix 3B shows: 321,000,000 unquoted options and 44,897,809 quoted options. 221M of the unquoted options have an exercise price of $0.03 on or before 23/02/2021.
If we consider the shares outstanding difference between App 3B and current shares outstanding only approx. 10M of these options have been exercised.

Overpriced at $0.11/share

<2 quarters of cash flow = possible cap raise in near future

 

It’s a shame there is potential for a further 20% dilution through the exercise of $0.03 options on or before Feb 2021 as this company ticks a lot of boxes and has potential. It is still very speculative (basically a start-up) and with the current price and likely dilution I feel the risk far outweighs the reward.

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#Business Model
Added 2 months ago

Business Model

Problem:

There are 2500+ wineries in Aus and over 2000 distributors making it highly fragmented and extremely erosive on supplier’s margins. Distributors margin = 35% + marketing support. Retailers margin = 35 – 45% margin + marketing support

There is no one technology that everyone uses.

Supply change hasn’t changed in 30+ years. It’s incapable of serving fasting growing markets – direct to consumer and online markets. Modern consumer expects delivery in 2 days and in Aus this is next to impossible.

Solution:

Technology that connects the industry; the goal being that everyone in the industry has some contact with it. Use that connection to unlock the value and improve delivery time and reduce human resources in the supply chain.

Platform – 3 key components:

Each can function alone but are all vertically integrated.

Order management system – SaaS. Cloud-based application that connects the various stakeholders within the industry allowing users to consolidate and manage orders generated across all their sales channels - websites, cellar doors, retail channels, wholesale channels, export channels. This is done all in one place giving a holistic view of their inventory holdings regardless of whether they are in their warehouses, 3rd party warehouses or on a ship to China.

These are integrated with key technologies used within the industry including ecommerce solutions but also specialised software used by wineries to manage their cellar doors and production.

Logistics solution – the only way to solve delivery within 2 days was to actually hold inventory locally and being able to pick and pack and deliver from those locations. Digital Wine Ventures have a network of depots around the country where they hold inventory on consignment on behalf of their customers. As orders come through they get routed to the nearest depot, pick, packed and delivered.

The best part is they employ 4PL meaning they don’t operate the warehouses – they use 3rd party warehouses. They use DW8 technology, systems and processes and customers have no idea that they are using a range of different suppliers for this. It becomes a simple singular experience and very simple for them to use.

This has been accomplished through a partnership with Australia Post providing access to 57,000 sqm of storage and >100 warehouse staff on a variable cost base, scaling up and down as required. The benefits are reduced capital expenditure and execution risk.

Their orders flow directly into APs fulfillment system – allowing same and next day delivery in Adelaide, Brisbane, Sydney, Melbourne and Perth. There is no other business in Australia that can do this in the amount of markets they can, some can do it in Sydney and Melbourne but they are the only ones who can do it nationally.

AP was deemed an essential service, so they’ve been able to maintain all of their operations.

B2B marketplace – goes live later this year and is what this business is all about. Marketplace allows suppliers to sell directly to thousands of trade buyers, providing a low-cost route to access and service the wholesale market without a distributor.

This helps suppliers

•Build brand awareness

•Generate incremental sales

•Provide customers an order portal

•Reduce paperwork and administration

Current wholesale wine market has ~$2.2B of trade that goes through the market every year – going through distributors who typically take 35%. This is an enormous amount of lost profit. Digital Wine Ventures is cutting out middleman and enabling a higher margin for suppliers all while allowing suppliers to maintain direct relationships with buyers. Originally, they wouldn’t be aware of who’s stocking their product. This will generate incremental sales and reduces administration cost for them.

 

Revenue Model – 3 Core Revenue Streams

Platform fees: SaaS subscriptions, support, and data. They have currently waived these fees to increase their customer base as well as offer support in these difficult times to wineries. They will increase those fees over time which will become substantial recurring revenue.

Trading fees: charge a % of overall transaction. From B2B marketplace (later this year) – Dean Taylor compared it to what online share trading did for broking industry – creating an online platform that allows efficient trade of product without layers of middlemen.

Fulfillment fees: storage, freight, surcharges.

Annual release pattern of the wine industry provides them access to recurring revenue. Over time they expect trading fees on their B2B Marketplace to become their largest and most profitable revenue stream. This is now their primary focus.

For a list of their fees: https://winedepot.com/rate-card/

 

Addressable market (Australia)

SaaS Income

Wineries – 2,500+

Distributors – 2,000+

Licenced venues – 60,000+

Trading Income:

Wholesale wine market - $2.2B pa DW8 believe they will grow this by providing easy ramp for wineries

Fulfillment Income

Wholesale – 70M cases pa

Direct-to-consumer – 12M cases pa

Online retailers – 10M cases pa

Global wine market is expected to reach USD 423.6B by 2023

Once proven in Australia, Winedepot plans to progressively expand its unique trading and fulfillment model into other key wine markets.

China is Australia’s largest wine export market at $1.2B pa

Digital Wine Ventures has established the corporate, legal, financial and IT structures required to operate their trading and distribution platform in mainland China, already having a small office in Shanghai.

Partnerships with Australia Post provides access to 15 distribution centres in China servicing Tier 1 and 2 cities, which could be used to expand their depot network.

They are also providing fulfillment for olive oil and vinegar for existing customers.

Key Strengths

Green field “tech” opportunity

Recurring revenue streams

No inventory risk (none of the product is under their ownership)

4PL logistics model – meaning they’re not investing in any of that “old world” infrastructure

Totally agnostic – they don’t work with any wine partners meaning they can work with Coles, Woolies, Metcash inclusively.

Highly experienced team

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#Leading Indicators
Added 2 months ago

Leading Indicators

Appears to be a trend in “marketing” and “digital marketing plan” in relation to search terms for “wine” – May suggest suppliers (wineries) are looking for better ways to market their product during recent bushfires and Covid. Could also be irrelevant.

“Wine delivery” “Online wine” and “Alcohol delivery” huge positive trends during March.

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#Management
Added 2 months ago

Management

Early 2019 – Dean Taylor appointed CEO

Mr Taylor brings with him a wealth of experience and contacts in the wine industry, having been named one of the 50 Stars of Wine and Top 50 People in Ecommerce and has seven successful online wine ventures. With a career shift in his early 30’s he launched his first business Wine Ark – an off-site climate-controlled storage for wine collectors. This was eventually sold for $8.5M.

Further leveraging tech and his love of wine he established Wine Exchange, the Cellar Club, as well as Crackawines.com.au – an online marketplace that allows wineries to sell direct-to-customer.

After a busy 10 years regularly working 7 days a week, he accepted an offer to sell his 3 businesses.

He states all his wine ventures have been disruptive with a strong tech focus.

His insight into running a successful ecommerce business is to be patient and to surround yourself with great people with skills and experience you don’t have. Don’t be afraid to let average people go to make room for great people, create a workplace with a great culture and always make the happiness of your customers your number one priority. He stresses the importance of technology in today’s business world stating, “if you’re not a technology company, you are about to be disrupted by one.”

With regards to the team around him, he’s done just this, clearing out the old Dawine BOD and appointing a strong team.

Sep 2019 – appoint James Walker – Non-Executive Director

Mr. Walker has a track record in successfully commercialising cutting-edge technology in emerging markets. He has headed a number of Australian and international technology companies, including as Chief Executive Officer of DroneShield, Chief Financial Officer of Seeing Machines and held leadership positions in a number of growth companies. Mr. Walker is currently the Non-Executive Chairman of thedocyard, a Non-Executive Director at Bluglass and the Chief Financial Officer of Douugh, an AI based fintech. His strong finance, strategic management, M&A and IPO experience will add significant value to the Digital Wine Ventures Board.

Nov 2019 hired Paul Evans – Non-Executive Chairman

Paul has 27 years of private equity experience with 3i in the United Kingdom and with AMP, Gresham and Ironbridge in Australia. After six years as a Director of AMP Private Equity, where he led several of Australia's leading management buyouts, Paul left to join Gresham in 2001 as a Director. There he led the A$252 million buyout of car parts group Repco in 2001.

In 2003 Paul became one of the Founding Partners of Ironbridge and has represented Ironbridge Funds on the Boards of Barbeques Galore, iNova Pharmaceuticals and Amart Furniture.

Paul obtained a first-class Honours degree in Modern Languages from Cambridge University. He is also a keen wine collector and the current Chairman of the Advsory Board at Elderton Wines.

Feb 2020 hired Matthew Johnson – Finance Manager - promoted to CFO June 2020

Over 25 years of accounting and financial management experience in a range of local and international businesses of various scales. Including PBL, British Telecom, Westfield, George Patts, Fairfax and DMG World Media. Over the last 5 years Matt’s focus has been mostly helping fast growing SaaS and Fintech businesses like WINEDEPOT including Maestrano, Inlogik and GeoOP (NZA:GEO).

March 2020 hired Steven Alexander - COO

Two decades of operational experience within the logistics and supply chain industry.

Steven has a track record of uncovering efficiency improvements, reducing operating costs, and leveraging Lean Six Sigma practices and technology to generate long-term competitiveness and simplifying complex supply chains.

Steven has held key strategic roles (General Manager of Operations) with organizations like Fastway, a globally franchised courier company. Previously he held a position with Damco (part of the A.P Moller - Maersk Group) a global logistics company that has a presence in 100 plus countries, over 11,000 staff and turns over in excess of 2.5 billion US dollars. His role there was to build and develop an operational structure to support the Australian and New Zealand business units managing a range of high-profile customers including Zara, Country Road, Bardot, Nike and Consolidated Brands.

Prior to that, he was a General Operations Manager for Americold LLC which owns and operates over 185 temperature-controlled warehouses around the world. One of his key projects there was managing the successful relocation and consolidation of the Woolworths business into one super HUB (Distribution Centre).

Steven holds a Bachelor of Business (Logistics and Supply Chain Management), a Diploma in Logistics Management and is currently completing his Masters of Business Law.

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#Company Overview
Added 2 months ago

History

Early 2019

DW8 – Dawine acquires WineDepot – a B2B electronic marketplace for the wine industry. Up until this point Dawine was burning cash and not having success. It appears they were focused on the Chinese market while not accomplishing much.

As part of acquisition Dean Taylor, founder and owner of wine depot, is appointed CEO and executive director. In addition, Mr Taylor is issued 83,333,333 fully paid ordinary shares for the acquisition of 100% of WineDepot. This amounts to roughly $500,000. In addition, Mr Taylor has 50M Class A performance rights and another 50M Class B. If/when he achieves these his total holding will be brought up by ~10% to roughly 18% in the company.

Class A conditions: company generates at least $1.25M revenue over any consecutive 3 Qs (equating to AR of at least $5M) AND VWAP of company’s shares over any consecutive 3-month period of at least $0.015. Expires 3 years after his start of employment.
Class B conditions: company generates at least $2M revenue over any consecutive 3 Qs (equating to AR of at least $8M) AND VWAP of company’s shares over any consecutive 3 month period of at least $0.025. Expires 3 years after his start of employment.

With 100% share-based compensation for Winedepot, his motivation is to see Digital Wine Ventures succeed and his incentives are adequately aligned with shareholders. For comparison, most recent Q revenue is $183,000.

 

What They Do

WINEDEPOT is a cloud-based technology platform that has been designed to connect wine industry stakeholders to reduce the time, margin and capital wasted in the existing supply chain. Catering for producers, distributors, importers and retailers of all sizes, the vertically integrated trading, order management and logistics platform provides an end-to-end supply chain solution capable of servicing a wide variety of sales channels including the rapidly growing direct-to-consumer and online market segments. WINEDEPOT plans to prove out its integrated wine trading and smart logistics platform in Australia before expanding its depot network into other key markets for Australian wine such as China, USA, UK, Canada, Hong Kong, Singapore and New Zealand.

Recognising the potential of Australia's fastest growing wine sales channel - the $1 billion online direct-to-consumer market - WINEDEPOT combines technology, storage, logistics, wholesaling and retailing together via one platform, to leverage this opportunity and bring the thousands of existing wine sales platforms and distributors together in one unified platform that not only meets but exceeds consumer expectations.

With depots in each state of Australia, they’re able to connect boutique Tasmanian wines with customers across the country in record speed. Once their presence and operation have been well cemented locally, they plan to look at how this solution can be applied to global markets.

Digital Wine Ventures(ASX DW8) is an Australian Publicly listed company that aims to identify and invest in early stage technology-driven ventures that have the potential to disrupt and digitally transform segments within the global beverage market and support them by providing access to capital, expertise and share services.

The company streamlines Australia's highly fragmented wine industry which to date has been inefficient and fails to meet modern consumers expectations.

Allows sellers to expand their reach internationally and domestically, by providing access to inventory from thousands of suppliers and enabling drop ship orders directly to consumers from strategically placed depots. For producers, this smart logistics solution dramatically reduces delivery costs and shipping times, but also simplifies administration and increases sales opportunities.

Over the past 10 years there has been an enormous shift in the way consumers buy wine. Supply chains, dominated by distributors with high-cost warehouses, haven't adapted to provide the range of wines people want, the prices or the speed of delivery.

They're harnessing the full potential of technology to eliminate all the double, triple and sometimes quadruple handling that goes on behind the scenes to get a single order delivered, whilst also providing a faster and cheaper delivery, wider consumer choices and the ability to easily purchase wine online by the bottle rather than case.

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#Fundamentals
Added 2 months ago

Fundamentals

MC
$12.739M

Shares Outstanding
1.16Billion

EV
$9.99M

Income Statement

Margins are not high (16.4%). As company is highly scalable, vertically integrated, and leveraging 4PL margins should increase as they onboard more customers. They’re also waiving platform fees currently to help struggling wineries as well as onboarding new customers. However, it’s the B2B Marketplace to launch 2nd half of 2020 that should drive profits and have higher margins.

Balance Sheet

Strong, even if you ignore the extra cash from the capital raise

Current ratio: 3.6* this would be est. 0.6 without the $1.56M from the recent CR

D/E: company has zero debt

Cash Flow Statement

Most recent Quarterly - they only have 1.7 Qs of cash left.  Management expects this to extend out past 2 Q’s with some streamlining.

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#Competitors
Added 2 months ago

Competitors

Winedirect.com.au – uses Aus Post. Delivery can take up to 10 working days, but this time frame can be shorter depending on the overall pressure on the delivery network at that particular time, your distance from major centres and product availability.

Freight is free on any order of 12 bottles or more, $7.50 for anything less than 1… anywhere in the country.

Vinomofo - We charge a flat $9 per order, but shipping is FREE when you order 3 or more cases in the one order. They use Aus Post as well.

Delivery times: Vic up to 2-3 days. NSW up to 3-4 days. SA up to 2-4 days. TAS 3-4 to 12-16 days. ACT up to 3 days. QLD 2-4, 3-5 up to 5-13 days for far north. WA 4-5 days up to a week. NT 4-6 days up to 2 weeks for remote.

Good Pair Days – deliveries are a bit delayed with recent surge in demand. Syd, Mel, Bris – 1-2 days, Perth 5-7 days, Adelaide 2-5 days, Rural – longer. Shipping is free for all orders that have 4 bottles or more. Otherwise we charge a flat rate rate of $9.

Tipple – charge flat rate $7.95/order with min $30 order. Deliver to 120 suburbs in Melbourne and Sydney.

Astrovino – standard courier delivery rate $12.50, express $22, same day/next day local delivery (Melbourne only) $20. Bris and Adelaide 2-4 days, Melbourne and Sydney 1-3 days, Perth and regional 5-7 days with standard service via courier.

Jimmy Brings – deliver to Sydney, Melbourne, Canberra, Brisbane, Adelaide, Sunshine Coast, Gold Coast and Perth. Charge $5 plus a mark-up (not confirmed with website).

Handpicked wines - $10 delivery to metro areas in 2-5 business days, regional up to 14 days – Aus wide. Express same day only available to Sydney metro for $15.

Naked wines – 2-3 days Syd, Mel, Perth metro, 2-4 days Bris, Can, Adelaide. Freight costs vary.

Amazon – B2C free delivery for orders over $39 with Amazon Prime subscription ($6.99/mth)


Compared to:

Wine Depot – metro Syd, Bri, Mlb, Adl, Pth - $7.95/case. Non metro $10.95 and up. Same day service to metro areas.

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#Bull Case
Added 2 months ago

I have been holding since December 2019. It breaks all of the rules of the Good Stocks Cheap framework but hey. I bought in because of Dean's track record, home state bias - SA has lots of wineries but not much opportunity apart from this, Australian Vintage and Treasury Wine Estates, to participate via holding shares. 

 

Plus, let's be honest, the ridiculously low share price of below 1c was attractive. 

 

CanadianAussie is a machine and deserves props for his thorough analysis here, much more than I can manage.

 

Another reason for my buying is that, despite Dawine burning cash and failing to make inroads in the Chinese market, they still have the license to export. So once Dean sets up the machine here, we should be good to go overseas and China's taste for wine is increasing along with the fact a whole USA's worth of population will enter the middle class in something like the next 10 years. 

 

So, yes, they have wayyyyy too many shares on issue and are likely to have to do another capital raise. Therefore I've only put $500 on them. It's my one guilty pleasure. 

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