LONDON (ShareCast) - (Sharecast News) - RBC Capital Markets initiated coverage of Majestic Wine at 'outperform' with a 550p price target on target on Thursday, saying its analysis has shown that Naked Wines is deeply undervalued.
The bank said Majestic Wine's unique customer-funded online business, Naked Wines, is positioned in the two fastest growing channels in the wine market and should drive a re-rating of the group's shares.

"Our proprietary US survey highlights Naked Wines as the number one website for selling wine among its target consumers, reflecting its overall superior proposition compared to peers as our research also reveals," it said.

RBC's analysis suggests Naked Wines is valued by the market at a 55% discount to internet peers on EV/EBITDA and a 50% discount on a growth-adjusted basis. The valuation discount is even greater on EV/sales at 70%, which RBC said is excessive.

Its intrinsic valuation of Naked Wines implies a CY19e EV/sales multiple more in line with internet retail peers, at 1.3x.

"Naked Wines' larger scale and direct-to-consumer model provide it with a competitive advantage through better prices/quality which should continue to widen against peers as the business grows.

"Naked Wines' subscription model already drives high levels of customer retention, which we expect to be maintained as the company continues to invest in its proposition."

At 1020 BST, the shares were up 1.5% to 408p.

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