Questor: no longer tied down by Majestic, Naked Wines can get on with breaking America

It is a sad fact that by now – with three full lockdowns under our belts – we are well versed in the stock market winners and losers of the pandemic. Subscription businesses were already on a tear before we were forced to sit at home and, for the half of the population who have managed to retain their pre-pandemic income, looking for ways to spend growing savings piles.

Our tipping of Naked Wines, formerly Majestic, back in March 2018 looks prescient. The company shed its brick-and-mortar business to private equity firm Fortress the following year and turned its attention squarely on the online business, particularly in the enormous US consumer market. Shares took a dive on that news, and again when Naked founder Rowan Gormley announced he was leaving soon after. But since then capital growth has been staggering, up nearly fourfold since the start of 2020, from 220p to more than 813p at yesterday’s closing price.

Thomas Moore, a long-term shareholder via the ASI UK Income Unconstrained Equity fund he manages, said: “People will be sceptical about whether Naked’s current strong performance is just as a result of the lockdown, but Naked was in a good place anyway.

“The share price before the pandemic did not reflect the business. Investors had seen the potential of Ocado or Asos but they hadn’t looked at an online retailer in the wine space, and now it’s on the verge of cracking the largest wine market in the world.”

Mr Moore is talking of course about America, where regulations that persist from the Prohibition era have largely prevented the direct to consumer market taking off in many states. US sales now account for half of Naked’s total and this is also where its growth is the fastest. As you’d expect, the business is loss making, but here there is progress, too. Losses were cut by 47pc in the first half of its 2021 financial year, to £2.7m.

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In any case, Mr Moore isn’t worried: “The more they invest now, the greater share of the market they will grab. It’s a window of opportunity caused by Covid. In the long term that sales growth will turn into profits. They can scale up with similar fixed costs.”

With the end of perpetual lockdowns finally in sight, Questor remains confident the strengths that saw Naked take off during the pandemic will continue to propel it even when bars and restaurants reopen. Monthly cancellations by Angels, Naked’s term for members, tracked far lower in 2020 compared to 2019, even when retail and hospitality reopened during periodic relaxations.

Questor says: hold

Ticker: WINE

Share price at close: 813p

Update: Totally

Our advice to invest in Totally, the NHS outsourcing firm, did not look particularly well timed, coming as it did a matter of days before reports that the Government wanted a smaller role for the private sector in the health service.

We went back to the investor we spoke to about the stock, John Davies of Seneca Partners, to find out if he felt able to hold on to it in light of the development. We found him more bullish than before.

“We have spoken to Totally about the possible reforms and it said it saw them as broadly positive, a view we certainly share,” he said.

“The NHS will continue to be swamped by demand and Totally is a trusted partner. I think operationally not much will change and Totally itself is convinced that there will continue to be a requirement for outsourcing – the NHS will carry on working with, and relying on, its best and most trusted partners.

“The market picked up on the possible restructuring of urgent care centres, one of the areas Totally operates in. We think the major change will be about where the centres are located. It would be sensible to move them from hospitals to the community – you don’t want them near potential virus hotbeds.”

He said investors had reacted before they had properly understood the proposals. “Really the shares should have risen, not fallen, as we believe there will be a flight towards trusted partners such as Totally to assist with the proposed reforms,” he said.

The shares had risen between our tip and the emergence of the proposals so even after the subsequent fall we are slightly in the black. A strong hold.

Questor says: hold

Ticker: TLY

Share price at close: 29.50p

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