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Is Gormley the right man for the job, analyst questions?

10 July 2023 By Arabella Mileham

The surprise re-appointment of Rowan Gormley at Naked Wines, following a delay of the release of the annual results raised some eyebrows in the City last week, with some analysts questioning whether Gormley was the right man for the job.

The company’s share price fell 10% on the day of the announcement Tuesday to 89p from 130p, dipping 50% year on year by the end of the week. And broker Liberum downgraded Naked from ‘hold’ to ‘sell’ in a note to its investors, saying that the “stop-start growth strategy” of the company had historically brought about “way too much volatility” and it seems “those days could return”.

Naked Wines’ business model struggles with the balance between growth and profits, as its high CAC and
not high enough retention rates imply a need to spend significant money to replenish the sales and customer base every year,” it noted, adding that “If one had thought the ‘stop-start’ growth strategy had come to an end, well think again.”

It added that it had historically questioned Naked Wines’ ability to “sustainably drive profitable growth and did not appreciate the stop/start strategy that brought about way too much volatility”, noting that “those days could return and with so much risk in what is a tough market, we return to SELL (from HOLD) with a lower 80p TP.”

It argued that its HOLD stance was based on Naked Wines “previous pivot to profit and cash generation, which we argued provided a sustainable model of mid to high single digit net revenue growth and low to mid-single digit margin, which could allow the company to grow while generating cash for shareholders”. However, “there is no history of the business successfully doing that in the past whether under the current CEO Nick Devlin or under Rowan Gormley’s term as CEO,” it said.

Liberum analyst Wayne Brown also noted that “while the mantra of ‘sustainable, profitable growth’ is nice to hear”, the return of Rowan Gormley, now in the role of Chairman, was likely to lead to “an increase in marketing investment to acquire new customers” – which it why it downgraded its numbers.

Gormley, he said, was well placed to resolve the ‘stop-start’ issue and deliver sustainable, profitable growth, however although he had built the company’s £200m turnover, during his tenure “it was still losing significant money every year and always had a stop-start strategy towards growth”.

“We remain unconvinced that Rowan is the right man for the job considering his track record and the volatility under his tenure as CEO,” it said.

Brown also noted the appointment of Colebrook Partners portfolio manager Jack Pailing as “intriguing” as it raised speculation as to “whether there will be an attempt to buy this company on the cheap”.

“We do think that [Colebrook’s] views on long-term investing suggests that he will back the group to reinvest behind new customer acquisition and return to top-line growth.

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