Majestic start for wine chain

The Investment Column

Majestic Wine, the UK's largest wine warehouse chain, priced its forthcoming AIM flotation at 160p yesterday, putting a value of pounds 20.4m on the enlarged group. First indications are that the issue has been about three times subscribed, which should augur well for first dealings next Monday.

Majestic operates 61 specialist wine warehouses selling wine by the case to an affluent, knowledgeable clientele. All its outlets are relatively large, with their own car parking, and the chain attempts to differentiate itself from the supermarkets on the one hand and off-licences on the other with a wide range, wine tasting every day and informed staff who help customers make a selection rather than just take their money.

The intention is to use the pounds 4.4m proceeds of the placing to roll out a further eight stores a year to expand the chain from its heavy bias on London and the South-east.

The financial record is impressive, with operating profit before one- off distortions rising smartly from pounds 449,000 in the year to March 1994 to pounds 812,000 in 1995 and pounds 1.2m in the year to last April. During that time the portfolio has grown from 44 warehouses to 61.

One of the problems in valuing Majestic is that there are no comparable companies on the market. Most of the off-licence chains, such as Thresher and Victoria Wine, are part of larger leisure groups (Whitbread and Allied Domecq), and much of the wine trade is now conducted through supermarkets, with the rest through private independent concerns.

On the basis of forecasts from Majestic's nominated broker, Williams de Broe, the shares are being placed on a multiple of 17 or 18 times fully diluted earnings per share. That seems fairly ambitious, given the heavyweight opposition Majestic is up against, but the company appears to occupy a niche and a continuation of recent growth will soon bring that rating lower.