📈 2 stocks I'm watching

Five years ago today we were coming towards the end of the first lockdown, and the money that people saved by not going out spending ended up being spent elsewhere.

Online retailers hugely benefitted here.

So much so that Pro Cook (PROC) took advantage of the juiced up numbers to float a year later, which was an exceptionally great risk/reward short.

But five years on and the Covid hangovers (for the ones who survived) are starting to wear off.

The COLC has seen consumer discretionary spend withdraw, and retailers fight increasingly harder for tight-fisted customers.

Some are even now on a growth footing.

One company I was surprised to see doing well is Virgin Wines (VINO).

I have shorted the sister Naked Wines (WINE) both successfully and unsuccessfully, but never dabbled in VINO.

Revenue was almost flat in the interims, with PBT up 20% to £1.3 million.

This has come despite the ~30,000 or so decline in active members over two years with 157,000 registered at FY24 from 187,000 at the end of FY22.

Net cash was £17.3 million plus the ringfenced Wine Bank customer deposits of £6.4 million.

One of my big criticisms of Naked Wines was that it said it ringfenced customer cash, yet said it invested those deposits into finding new wines!

So was it ringfenced? Or was used to buy wine?

Virgin Wines is clear here:

Separately, the company released its “Growth Strategy and Capital Allocation Plan”.

The B2C side of the business is all about Customer Acquisition Costs (CAC) and customer Lifetime Values (LTV).

The lower the CAC and the higher the LTV, the better, in general.

I say in general because businesses can make the mistake of focus on driving down CAC.

What can happen here is they attract low quality customers who then don’t translate into a solid LTV.

Think about it, if you could spend £50 to acquire a customer to get £100 of average LTV…

Or you could spend £100 to acquire a customer to get £300 of average LTV…

You’d obviously go for option 2, because whilst CAC doubles the LTV triples.

This is why the overall ratio matters, but the quality of CAC matters not just the number.

It appears that Virgin Wines’ management understands this, as they talk about it in detail (emphasis mine).

The business also intends to drive growth in commercial partnerships, for example growing the alcohol channel with Moonpig, as well as its partnerships with WH Smith, Very, and Virgin Red.

Ocado has also been signed as a key partner.

All of this sounds positive, and it’s been reflected in a move in the share price.

Despite the near 100% rally in recent months, this is still hugely down from the inflated listing off the back of Covid.

At £29.9 million there is clear upside here and Monega Kapitalanlagegesellschaft mbH has gone from a non-notifiable position in April to over 10% now.

Gresham House Asset Management also holds 44% of the stock too, so anyone wanting a decent slug of shares may have to pay up.

The stock is now printing multi-year highs but has yet to pull back much, so I’d be wary of piling in now.

However, it doesn’t mean it can’t go higher.

This looks like a genuine turnaround story and one for the watchlist.

And before we continue, a quick thank you to our sponsor XTB.

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The next stock I believe has been completely missed by the London market.

It listed recently and I only spotted it due to skimming FT.

There were four comments on the article too, which shows market apathy.

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