Concha y Toro Winery – A Bullish Outlook on the Chilean Wine Market

Ever since the rebirth of the Chilean democracy industries across the nation had experienced a re-awakening. In the midst of a recovering economy Chileans also rediscovered a passion for wine that seemed to have been lost due to taxes levied on alcohol consumption and social policies that went into effect shortly after World War 2.

The Concha y Toro winery, located in Santiago, Chile, was founded in 1883 with Bordeaux grape varieties used in the production of Cabernet Sauvignon, Sauvignon blanc, Semillon, Merlot, and Carmenère. The company incorporated in 1923 on the Santiago stock market, and ten years later began international exports into Rotterdam, the Netherlands. Following introduction of more advanced production technology and acquisitions of additional vineyards, the winery made its debut on the New York Stock Exchange in 1994.

Over the past 20 years Chilean wine has gained popularity throughout Europe and North America. The Chilean Trade Association recognizes the value that wine exports bring to the economy and continue to work on leveraging the export capabilities of domestic producers. Additionally, a 2009 wine market study had revealed that Chilean wine market has experienced an average growth of 12% since 2000. Although the international wine market continues to be dominated by Italy and Spain, consumers in both the U.S. and U.K. are experiencing a decrease in demand tied to affinity of the country of origin. In practical context; it’s no longer enough for a wine to come from Italy to make it to the dining table.

Concha y Toro Winery Stock (VCO)

For any wine-loving portfolio manager this prompts the idea of an investment into the Chilean wine market. As per the Buffet strategy of investing in what you know (and nothing more), I entertained the idea and looked further into the Concha y Toro ($VCO) common stock.

Weather plays a crucial role in grape harvest and earnings reports. However, VCO continues to boast great earnings yields while the stock price itself is still rallying from the adverse weather conditions in 2015 that took a toll on production. The P/E ratio is able to show that the stock is valued 27.6% under it’s expected market price. The company also holds a 10.72% mark for return on investment, showing that the effort put in by investors does hold its own when it comes to the balance sheet.

Given the current market ramifications it would be wise to consider this stock and attractive investment opportunity. It is an asset that is greatly undervalued due to previous issues in performance, but with great prospects in the next following years.

 

Consensus: BUY

 

 

 

 

Sources Considered:

https://www.statista.com/statistics/233681/value-of-the-leading-6-wine-import-countries-to-the-us/

http://www.vdqs.net/2013Talca/documents/informations/The%20Chilean%20Wine%20Industry.pdf

https://en.vinex.market/about/snapshot/Chile-Wine-Numbers

https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Wine%20Annual_Santiago_Chile_3-4-2015.pdf

https://tradingeconomics.com/chile/gdp-per-capita

http://www.chilean-wine.com/chilean-wine-history/

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