Page 2 - MyNorth Professional SMA - Moderate

Our view:

DAOU Vineyards is a fast-growing US luxury wine brand based in California. DAOU provides
TWE with a bigger footprint in the US market, meaning additional size and scale benefits. The
acquisition allows TWE to fill a void in the US$20-40 bottle range in the US market whilst also
adding to their strong presence in premium and luxury range in the US. We like the scale
benefits the acquisition brings along with the increased market share in the premium/luxury
space. The acquisition also helps to diversify TWE’s group revenue mix and earnings base
across geographies, which is supportive of their strategy to reduce their reliance on China
revenues and growth.

TWE expects that the acquisition will be Earnings Per Share accretive within the first full year
of ownership, assuming their expected cost synergies of USD $20m can be realised within this
period. The acquisition also provides a meaningful cashflow increase from US tax benefits,
which should provide an annual cash flow benefit of USD $12m over 15 years. We are
optimistic that the expected synergies will be realised. We see no material impediment to the
realisation of the tax benefits.

While the acquisition doesn’t look cheap at face value (12.8x EV/EBITDAS), reassessing the
price paid in light of the expected synergies and tax benefit reduces this to 8.9x, whilst also
noting that TWE currently trades on an EV/EBITDA multiple well above this. DAOU is a fast-
growing business, which naturally commands a higher price. There are some concerns
regarding the ability for DAOU to continue to grow at the pace it has over the past 4 years.
Whilst we expect growth to slow, we remain comfortable with the growth outlook considering
the adjusted valuation metrics.

DAOU operates at a higher margin of 30% compared to TWE’s 24% margin in their existing
America’s business. Cost synergies should see the combined margin rest higher than 30% later
this decade.

Existing shareholders who do not participate in the offer will have their shareholding diluted
(approximately 10.6%) given the size of the equity raise relative to TWE’s market cap.

The offer price represents a 10.7% discount to TWE’s closing share price of $12.10 on 30
October 2023, before the announcement of the acquisition. We feel this is attractive given our
existing conviction in TWE, and the offer therefore presents an attractive entry price.

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