Panmure Liberum has kept its 'buy' rating and 85p target price on Virgin Wines UK PLC (AIM:VINO) after the online wine retailer reported a sharp acceleration in trading in the first two months of its second half, even as regulatory cost pressures continue to weigh on near-term profitability.
Revenue in January and February rose 12% year on year, a significant step up from 2% growth in the first half of the financial year.
The improvement reflects the company's decision over the past 18 months to invest heavily in bringing in new customers, with that cohort now beginning to generate the repeat purchases that drive the business model.
New customer acquisition was running 54% ahead of the same period last year in January and 83% ahead in February, accelerating from 40% growth in the first half.
The company's Warehouse Wines operation also performed strongly, with revenues more than doubling year on year over the two-month period.
The momentum has prompted management to increase near-term investment further, committing an additional £0.55 million in the second half, primarily targeted at customer acquisition.
The board acknowledged the short-term financial impact but said it was confident the future returns would justify the outlay.
That confidence comes at a cost to current-year earnings. Panmure Liberum has cut its full-year underlying earnings estimate to just £0.1 million, down from £0.6 million previously, following a weak first half in which adjusted earnings came in at £0.259 million against £1.6 million a year earlier.
The broker also trimmed its forecasts for the following two years, citing concerns about consumer spending pressure linked to the conflict in Iran, as well as rising transport and energy costs.
Management flagged the uncertain trading environment directly, pointing to the volatile macro backdrop and cost pressures on inbound shipping and delivery.
The balance sheet remains solid, with net cash of £10.6 million and the company carrying no debt. Panmure Liberum's 85p target implies substantial upside from the current share price of 56.5p. Full-year results are expected in October.