Delegat's takes some fizz out of asking price

Delegat's Wine Estate has cut the asking price for shares in its long-awaited public offering after receiving luke-warm demand from potential investors.

It was yesterday asking brokers for firm allocations at $1.40 to $1.60 a share and today the company should be able to indicate if demand is robust enough for the flotation to proceed.

A $1.60 share price would equate to 6.6 times next year's trading profits, less than the 7-11 times indicative range Delegat's presented to potential investors earlier this year.

One broker said he was seeing "moderate demand" for the shares priced at this level. But another said the company might even have to drop the price again.

Delegat's did not respond to the Business Herald's calls. Meanwhile, Westpac, the float's lead manager, declined to comment.

However, the winemaker is also thought to be considering a private capital raising as an alternative to a float.

Delegat's also told brokers that trading profits in the year to this June would reach about $19 million and the following year jump to $41 million.

These forecasts are a $1 million increase in each year on earlier guidance, but they are set out as "projections" rather than "forecasts". The latter definition asserts more certainty on estimates of a company's prospects.

The new earnings outlook suggest the company will have a debt-free value of about $260 million. At the mid-point of its earlier indications, Delegat's would have been worth $300 million debt free.

Delegat's is betting on a weakening kiwi dollar and rising production to deliver the growth. But brokers and potential investors are wary about the winemaker's prospects.

They believe a more than doubling of earnings is a hard ask and are, instead, making their offers on their expectations on the likelihood of the company managing that.

One potential investor said if Delegat's achieved 75 per cent of the projection it would still be a good result. But he had to decide what the company could achieve and then consider the proposed offer against this expectation.

Some are concerned about the state of the global wine market and the fickleness of stocks that are weather dependent.

But Delegat's has strong brands, particularly the recently-acquired Oyster Bay, and these should ensure good levels of interest from retail investors.

The Delegat family was expecting to cut its shareholding from 100 per cent to as low as 65 per cent. At the present price, this suggests about $91 million of shares will be offered to the public.

It is not clear how much of that sum will be reinvested, but the company has to repay $35 million from capital notes issued in 2004.

The company, New Zealand's third-largest wine exporter, has built a $70 million winery in Marlborough. It expects this facility to help drive the profit growth.

The float has been on the cards since the middle of 2004, but has been delayed several times. The latest delay came last year after a protracted takeover battle over Oyster Bay Vineyards.

That delay was hugely costly for Delegat's as it triggered an increase in the interest rate on the notes from 9.75 per cent to 11.25 per cent, the equivalent of $1460 a day. This is on top of the about $3.41 million in interest it pays noteholders.

The company, led by managing director Jim Delegat and his sister, Rosemari, was founded by their parents, Nikola and Vidosava, in 1947 after they emigrated from what is modern-day Croatia.