Purcari Wineries confirmed at BUY, TP RON 32 - Toughing it out

The Covid-19 crisis gave Purcari Wineries a couple of headaches, but also two pleasant surprises. We were not surprised by a hefty drop in demand from China, but the main problem was the overexposure to Horeca and duty-free shops in the Republic of Moldova. Moreover, Purcari did not enter into price war started at the beginning of the lockdown, which was particularly intense in Moldova. However, sales in Romania continue to grow robustly in double-digits, as the main distribution channel remains modern retail. The group continues to dominate the premium segment in Romania, getting closer to 30% market share. Ukraine was also a pleasant surprise in 1H 20, growing by 51% yoy, as the premium Purcari brand is gaining traction there. As sales in other CEE countries also proved resilient, we believe that group turnover could have some growth this year, albeit in low single digits. In the current base case scenario of an economic recovery in the region next year, we see Purcaris sales growth coming back to double digits, with Romania and Moldova as the main drivers. We also assume stable EBITDA margins around 32%-34% for at least a couple of years, as Purcari stockpiled grapes last year profiting from a strong harvest. All in all, we could say that the Covid-19 crisis is not at all an existential threat for Purcari, as it was the case of other geopolitical events before the listing. The company has a strong cash position, as dividends were suspended this year. We reckon that we do not see short term triggers for the stock, but we believe it could become more appealing as a consumer play if the recovery scenario is confirmed. We maintain our BUY recommendation, with a 12m TP of RON 32.