Winemaker puts own money on the line

Jim Delegat backs himself yesterday by promising a $22 million sweetener from his own pocket. Picture / Paul Estcourt

Jim Delegat has taken the unusual step of offering investors in his wine company a $22 million sweetener from his own pocket if prospectus targets are not met.

The family-owned wine company Delegat's Group yesterday announced plans to list 32.1 per cent of its shares on April 21 to raise $45 million.

Delegat and the other cornerstone shareholders - Rose Delegat and Robert Wilton - are so confident they will meet the 2007 net profit target of $13.8 million that they are putting up to $22 million of their own equity on the line.

If the profit falls short, they have agreed to cancel some of their own shares in order to boost the equity levels of new shareholders.

Jim Delegat said this was not about a lack of confidence. It was just a move to address the concerns of some retail brokers about the growth story the company was selling.

"It will make sure Jim Delegat gets out of bed in the morning and works really hard," he said.

The company is being listed with a value based on a price to earnings multiple (P/E) of 10.1 times. The industry standard is more like nine times.

The company has projected that revenue will grow from $58 million last year to $122 million next year.

With plans to return dividends of just a third of profits, the shares are not being sold as a strong yield investment, but Jim Delegat was extremely confident yesterday the growth story was not being oversold.

James Beale, of organising broker ABN Amro Craigs, said institutional investors, who had the time to do the analysis, had understood the growth story. But some retail advisers and their clients did not have the time to crunch all the numbers.

"With such a steep growth curve, the view was that it would be useful for investors to have something else to rely on other than just blind faith."

He said the guarantee was part of the original plan for the float, not a reaction to negative market sentiment.

"This is a proactive step which anticipates that the growth curve is substantial. We wanted to demonstrate there was a real commitment to achievement."

Called a "support deed", it was a unique idea and not based on international models. Beale said.

The support deed was capped so the maximum profit shortfall it would cover was $2.5 million.

Jim Delegat said the key risks to consider were the weather and the currency. The timing of the float was such that the fruit that would contribute to the 2007 results was now safely off the vines.

The movement of the currency in the past two weeks was all in the right direction for an exporter.

All Delegat's key international markets (the United States, Britain and Australia) were in growth mode and constrained only by supply issues.

But the company had invested heavily in vines and supply would be increasing dramatically over the medium term.