Australian Vintage gives investors a sobering first taste of its full-year results

The wine industry has had a rough ride over the past three years.

COVID-19, bushfires, a red wine glut, and catastrophic flooding at home were bad enough. Overseas, Brexit disrupted the British market, China imposed punitive tariffs on Aussie wine, and overseas shipping costs soared.

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Last Thursday, Australian Vintage gave investors a sobering first taste of its full-year results. Reported gross earnings are expected to be between $34 and $36 million, compared to $43.7 million in 2022. There is a continuing focus on costs and debt reduction, and there will be no dividend.

The floods have cut the vintage intake by 20 per cent, prompting the company to write off about $9 million in winery fixed costs.

By Friday, AVG shares had sunk to a 12-month low of 42.5c. The question is whether or not they are now in bargain basement territory.

The positive side is that the results are in line with what was predicted at the half-year stage. Shipping rates have reduced somewhat, China is reopening, AVG has increased its market share, is still making a net profit after tax, and its balance sheet remains strong.

Return on capital employed remains above 7pc, with net asset value double the share price. Perhaps most importantly, the management has clearly been quick to make some hard decisions in a tough year. The Punter has placed an order for 5000 AVG at 39c.

He has, however, cancelled his long-standing order for Incitec Pivot (IPL) shares, which he placed in the expectation that the group's fertiliser business would be floated off as a separate business. That has not happened, and the person brought in to head the fertiliser side is leaving at the end of the month.