Summer Series: Digital Wine Ventures (ASX: DW8)

Bryce: [00:01:15] Welcome to another episode of Equity Mates, a podcast where [00:01:17][2.5]

Bryce: [00:01:17] we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. [00:01:28][10.7]

Alec: [00:01:28] How's it going, bro? I'm good. Bryce excited for this episode. Yes. Yeah. [00:01:35][6.3]

Bryce: [00:01:35] Ren. So before we kick into it, two pieces of housekeeping. Get your shirts. If you haven't already support [00:01:40][5.1]

Bryce: [00:01:41] Ren, you know, he uses the funds to buy some coffee [00:01:43][2.5]

Bryce: [00:01:44] and lunch. Twenty five bucks if you haven't already got your Equity Mates T-shirt, only a few left. And also if you haven't started listening to Get Started Investing feed or know some friends who want to start their investing journey, shoot them over to get started investing on their podcast feed. And it's a 12 part series with all the fundamentals that you need to get started on your investing journey. [00:02:05][21.0]

Bryce: [00:02:05] From all the lessons that we've learnt from our journey and also the experts that we've met along the way. So get stuck into that. [00:02:11][5.9]

Alec: [00:02:11] Yeah, 100 percent. [00:02:12][0.6]

Bryce: [00:02:12] So Ren the final one of our shallow [00:02:15][3.0]

Alec: [00:02:17] dives, depending on the order in which we realise, depending on the order, the final one that we're recording, the final one [00:02:22][5.0]

Bryce: [00:02:22] that we're recording, mammoth recording session today. So this one will certainly be short and sweet, I think. And that's not because we're not interested in the company, but it's just because there's not really a lot going on with this company at the moment unless we're missing something significant. Would you agree, Ren? [00:02:38][16.5]

Alec: [00:02:39] Well, look, if we're missing something significant, the market is also missing something significant because the company's market cap is seven point one million dollars. [00:02:47][8.4]

Bryce: [00:02:48] Seven point one. Really? Yes. That is almost not worth being listed. [00:02:54][6.4]

Alec: [00:02:56] Yeah, I don't think you'd want to be listed, to be honest, but that's less than most Silicon Valley companies raise. And like a series around these days, that's probably [00:03:04][8.7]

Bryce: [00:03:05] less than most Silicon companies spend on stuff lunch. [00:03:08][3.6]

Alec: [00:03:11] But anyway, look, we shouldn't disparage it because Equity Mates media is worth far less than seven million dollars. [00:03:17][5.5]

Bryce: [00:03:17] Absolutely. For the moment. So Ren we're talking about digital wine venture is it's ASX ticker is D w8. [00:03:24][6.7]

Alec: [00:03:25] Can I just interrupt there. I ASX ticket hasn't been taken. [00:03:30][4.4]

Bryce: [00:03:31] Yeah. So, so you're saying rather than go with W eight we should have, they could have just taken DWB to remove any confusion. [00:03:38][7.6]

Alec: [00:03:39] I mean it's not even confusion, it's just their name is digital one ventures and that w they was available, [00:03:47][7.9]

Bryce: [00:03:48] maybe they just went maybe it's going to be d wait [00:03:50][1.9]

Alec: [00:03:50] maybe like don't wait for your drinks in one day. [00:03:55][4.2]

Bryce: [00:03:55] What are those. Look, we can take that up with them along with a couple of other questions. We've got that Digital Wine Ventures is a company that invests in technology driven businesses servicing the global wine and beverage industry Ren. So before we jump into that, I have a few questions for you. The global wine market is valued at three hundred billion. Napat, what do you think Australia produce in terms of the value of wine? Ten billion coming in a little less than that at six billion. And that is produced by how many number of wineries in Australia do you think? [00:04:32][37.6]

Alec: [00:04:33] Two thousand. [00:04:33][0.4]

Bryce: [00:04:34] Not bad. So two thousand five hundred wineries in Australia. And who do you think is the biggest exporter of wine in terms of state in Australia or territory? [00:04:43][9.6]

Alec: [00:04:44] Well, that's a good one. I mean, Adelaide's best known. Yeah, New South Wales is the biggest. Yeah. New South Wales has some good wines. Melbourne has some good wineries. Do they. Yeah. Melbourne and Melbourne. Where in the country [00:04:56][12.3]

Bryce: [00:05:00] is there not a Melbourne state. [00:05:01][0.9]

Alec: [00:05:01] Well given your reaction from that. Oh sorry. Victoria, is that what you. Yeah. Okay. It's not going to be in any of the hot state while Queensland wine [00:05:09][8.6]

Bryce: [00:05:10] hot state [00:05:10][0.2]

Alec: [00:05:11] because Western [00:05:12][0.4]

Bryce: [00:05:12] Australia's Margaret River. [00:05:13][0.8]

Alec: [00:05:13] True. But in the southern part of the question. Yeah. They called corner of Australia as it's no, I'm going to go with the obvious answer is South Australia. Yeah. [00:05:25][11.2]

Bryce: [00:05:25] You've nailed that one as a percentage of total exports. What do you think it is? 40 percent. Not bad. Thirty three percent. So, yes, a significant market for digital wine venture to be playing in. So they're obviously looking for companies that are disruptive, transformative, looking in areas at which they can, I guess, disrupt the way things are going in the wine market at the moment, servicing the wine market. They're not necessarily investing in any wineries or production at this stage. [00:05:50][25.1]

Alec: [00:05:50] Well, here's my first question. How many companies have they actually invested in? [00:05:54][3.4]

Bryce: [00:05:54] They've invested in a grand total of one company so far. So they are Prae Revenue Ren. Meaning no revenue to report at this stage. Yes, they've invested in wind depot now, wind depot, I think from my point of view I like it's a good idea. And what they do, there are one logistics solution company. And so they set up a whole bunch of depots around Australia. They house wine from producers around Australia, and then they distribute and manage the orders for these wines and send to to the customers or to other businesses. Now, you and I both know Ren that the last mile, as it's called in in retail, is one of the trickier parts. And that's that part between the sale of the product and getting it to the consumer's home. And this is supposed to be helping that part of the journey for small boutique wineries and I guess other winery retailers as well, who I guess struggle to be as it with the distribution channel. What are your thoughts? [00:06:53][58.7]

Alec: [00:06:54] Look, I. I have a different view to you. I'm not I don't know how much they've actually solved anything or if they're just trying to sort of capture value in an existing supply chain. They haven't sold the last model. They use Australia Post to deliver. And essentially they've just partnered with Australia Post to collect from their warehouses. And so essentially they just are becoming an aggregator. You know, I'm sure in their investor pitches, the term Amazon for wine was used more than a couple of times. Yes. Just think of Amazon's third party logistics, you know, where sellers pay Amazon to house their stock in the Amazon warehouse and then Amazon will fulfil the order once it's ordered through the platform. That's really what these guys are doing with wine. They are offering warehousing solution for smaller wineries and then they're fulfilling it, but they're fulfilling it through Australia Post. I can see a value proposition in terms of discovery for customers. Yeah, if you gives them access to smaller wineries that they may not otherwise have known. And I can see a solution in terms of capacity for smaller vineyards who can't hold a whole lot of stock because they don't have a whole lot of space. And if they can put it into a distribution centre, then they can you know, they can probably sell more and produce more because they know they can and have throughput out of their site quicker. In saying all that, though, I don't feel like they've really reinvented the wheel here. [00:08:19][85.3]

Bryce: [00:08:23] What they like, I don't think they're trying to reinvent the wheel, I just think they're trying to provide a service that's perhaps not available at the moment. [00:08:31][7.9]

Alec: [00:08:31] But is it not available? Like there's plenty of people that order wines from plenty of different wholesalers, like bloody Qantas has a wine club that you can order Qantas wines from. And I just think they're going to be X plus one in a pretty crowded space. And then the distribution and logistics to sit behind a lot of these wine clubs are somewhat different. But realistically, I think it's a pretty crowded space. [00:08:55][24.2]

Bryce: [00:08:56] Yeah, I guess it depends on what is the variety of wine that you can choose from, because at the moment, if you're looking to get same day delivery or, you know, even Jemmy brings within sort of an hour, your selection is very minimal. If you then look at the other end of town where you have large selection, you're generally looking at sort of a two day delivery period. This is where they're coming in to say that we can do the same and next day delivery. And I guess by holding a larger inventory in these warehouses, they might be filling that gap in between. [00:09:23][27.6]

Alec: [00:09:24] So let's say, again, I just think it's a I don't know if it's nailed the customer proposition because I think customers that if they're if they're saying we're going to do boutique wines, if we're going to play the discovery card and we're going to give you access to a whole lot of wines that, you know, there's only. Yeah. That you wouldn't otherwise have access to. The the profile of that customer is someone who has a lot of wine in the cellar or in their house and is ordering, you know, by the dozen, then they're not the customer that's getting the Jimmi brings up and trying to get same day delivery. They're happy to wait because they are collectors and have a lot of wine. The flip side is if they're trying to smash Same-Day delivery and so when we've got the most efficient supply chain, then they brush up against the people like Jamie Briggs, who will always be more efficient because they're not reliant on Australia Post. And then people who are desperate for that efficiency will probably sacrifice range for efficiency and go with, you know, the jemmy brings of the world and stuff like that. And I'm sure there is a sweet spot in the middle. Maybe people who have a dinner party that night and that same day delivery restaurants that are running short on certain wine that you can't get in most places, customer value proposition that they answer. I just don't know if it's that broad. [00:10:42][77.9]

Bryce: [00:10:43] Yeah, well, you don't buy a lot of wine, so. [00:10:45][1.9]

Alec: [00:10:45] No, but if I do, I'm not desperate to get it. Yeah. So yeah. Oh I'm on the way somewhere and I'm getting it on [00:10:53][7.9]

Bryce: [00:10:53] the way up to four ten special that each [00:10:55][1.3]

Bryce: [00:10:55] of [00:10:55][0.0]

Alec: [00:10:56] the three bags that I finish my night with, I'm sure there's a sweet spot. But you know, you just rattled off a whole bunch of numbers around a six billion dollar industry. I don't know how much of the industry that captures. [00:11:05][9.0]

Bryce: [00:11:06] So what's also interesting, Ren, is that this wine depot was started by the CEO of Digital Wine Venture. So essentially he created wine depot and then has created an investment vehicle to then buy that. And now he runs digital wine venture. So I don't know if there's anything dodgy with that or what's going on. I'm sure there's not. It sort of makes sense. But look, we talk about management and their experience in the industry, and Dean Taylor is the CEO now. I don't know if you've read his CV Ren, but it's safe to say that this guy has certainly had a solid crack at starting a lot of businesses in the wine industry and has a fair bit of experience just to give you a bit of a taste for what he's done. So started out as an architect. Then he established wine back in 2000, which was a climate controlled storage business. Two hundred million dollars worth of wine around the country, 2003 launched wine exchange there and online trading platform. Then the seller club, which was an ultra premium wine club. They were then acquired by Cellar Masters in 2009. Then in ten, he founded Cracka Wines, which is a direct to consumer marketplace that became one of Australia's top 50 online retailers and then went into a niche market called Winegrowers and started Mr Wine Guy before merging those two businesses to create the wine collective. So this guy has done it all. So we should be pretty confident that this he knows what he's doing. Wine Depot. We'll see what happens. [00:12:29][83.3]

Alec: [00:12:29] Your reading of his CV has just proven my point in that survey alone. There's three direct to consumer and business to business online wine platforms that will compete directly with Wine Depot Wine Collective. Mr Cracker Jack. Was it good wines, Cracker Wines and the wine cellar or whatever it was, were all like online aggregators that offer the public access to a whole bunch of wineries? [00:12:55][25.7]

Bryce: [00:12:56] Yeah, well I think slightly different model from the from the logistics point of view. [00:13:00][4.4]

Alec: [00:13:01] Yes, but customers don't care about logistics. They care about the result of logistics, which is getting the wine in a certain period of time. And I guess I would suggest that if it becomes such an important part of the customer value proposition, getting Australia Post same day delivery to get your wines, what's to stop? Any of those three wine clubs or any other wine club from saying that's an investment we need to make? That's a fair point. We'll hang onto the customers that we already have and make the investment in logistics right. [00:13:30][29.6]

Bryce: [00:13:30] Well, for my and [00:13:31][0.9]

Bryce: [00:13:31] Ren, that's pretty much a summary [00:13:34][2.8]

Alec: [00:13:35] of what I know. There's a few things we should just say. Yeah, it doesn't have revenue yet. So obviously valuing cash flows and all of that is hard. Tough to compare it to its peers because you can't use any of those relative metrics, price to earnings, price to sales. It does have some cash on its balance sheet. I think it's got about eight hundred and ninety thousand dollars. So you could value it based off that. Or you could you could try and do some top down analysis and say, you know, the value of wine subscription services is X number of dollars. And what you think it will capture this much of the market which will lead to this much in profitability. But there's a lot of forecasting that goes on there. So that's a long way of saying that right now. Tough to give this business of value. Yeah, the market's given a value of about seven million dollars, which as a per share value is point seven of a cent. [00:14:27][52.1]

Bryce: [00:14:27] Yeah. Which is. [00:14:28][0.7]

Alec: [00:14:28] Yeah, yeah. So look, I think I've obviously been negative on Wine Depot. I don't say the differentiation, but, you know, I'm sure that they'll prove me wrong and who knows what else this company will invest in. I think the only other thing I would say is you do have to take the whole we invest in technology driven businesses with a grain of salt when it's got eight hundred ninety thousand dollars on its balance sheet. Yeah, because what it will mean is that capital raise, capital raise or it will use debt to invest in businesses, which would be an interesting decision. So, yeah, look, I think there's a lot of unknowns with this business. [00:15:02][34.3]

Bryce: [00:15:03] Yeah, absolutely. Yeah. One to keep an eye on the [00:15:05][2.4]

Alec: [00:15:06] one hundred percent, I mean probably not the closest eye from me, but keep me updated with how it's going. I will Ren [00:15:12][6.3]

Bryce: [00:15:14] well as I said, short and sweet and I'm sure you can understand why, but thank you to everyone who has sent in recommendations for stocks to look at. We've got one hundred and eighty of them. So we've probably got a year's worth of doing this summer series to go. So appreciate everyone for sending it in. And Ren always good to chat stocks. [00:15:30][16.5]

Alec: [00:15:31] I think next year if we do this, I'm going to put a minimum market cap on. That's fine suggestions. [00:15:36][5.0]

Bryce: [00:15:36] That's fair enough. And we will leave it there. And looking forward to the start of the 2020 with some of our bold predictions. [00:15:44][7.9]

Alec: [00:15:45] Ren can't wait and the best way to start twenty twenty is in good financial state of mind, ready to really make the most money possible in twenty twenty. And the best way to do that is to brush up on the basics or go over the basics for the first time. And the best way to do that is Get Started Investing feed the podcast by Equity Mates. [00:16:06][21.3]

Bryce: [00:16:07] Yes. Great Varg. All right, we'll leave it there. [00:16:07][0.0]