Scheid Vineyards
Business
Vertically Integrated: Produces wine grapes and wine, operates a custom crush winery facility, sells bottled wine through wholesalers and directly to consumers.
HQ in Monterey County, California
On 4,000 acres of land, operates 11 vineyards + 1 state-of-the-art winery (80,000 sq. ft) + 1 smaller boutique winery near Greenfield California. The company is a fully integrated wine producer from vineyard to bottle.
Family ownership: 41%=$25M
Alfred Sheid = 18% of shares
Class B is convertible into 1 class A, but class B has 5 voting rights, Class A has 1
Scott Scheid = 11% of shares
Heidi Scheid = 12% of shares
Risks
2018 revenues were lower because harvest yields were 16% lower than 2017 and 8% lower than the 10-year company average
Revenues have grown from $41.9M in 2015 to $55.8M in 2018
Winery 100% powered by wind turbine... just built in the past 18 months. Cost estimated more than $1M.
11 years ago the company went "dark" and stopped filing financials with the SEC... For the first time in a decade, released a shareholder letter. COMING OUT OF DARK PERIOD
"Foregoing of current earnings to further increase the long-term intrinsic value of the business... they are also investing in people, infrastructure, and marketing to support the branded business (reducing current earnings power to drive future intrinsic value growth). As I have previously discussed, the shift to branded business should drive revenue, margins, and the multiple at which the business should ultimately trade." - Maran Capital
Transitioning from selling grapes to selling their own branded products and private label brands for retailers. scheid has partnered with several large retail chains to create wine labels that are exclusive to that retailer... also partnered with Kathy Lee Gifford and through this brand Scheid wine is sold in first class on one of the largest airlines in the world. They have gone from 151,000 cases in 2015 to 517,000 cases in 2018 which was equal to $26.3M in sales in FY 2018. They reportedly "have the capacity to do 2 million cases with little incremental capex." - Greenhaven Capital
Maran Capital = X%?, Greenhaven = Y%?
Started in 1972 by investment banker for tax loss shelter. Went public in the mid-1990s (proceeds used to develop additional vineyards). In 2002 small cap market crashed and Scheid started to buy back stock from then until 2010 (reducing shares outstanding and volume). In 2006, Scheid became frustrated with costs of SEC filings and started to trade over the counter (not on any major stock exchange).
Monterey County is knows at "the salad bowl of America." The area produces 70% of the nation's lettuce and is home to two of the four largest orchid growers in the US. Monterey County produces the most Chardonnay grapes of any county in the US>
Facility was built in 2005. The capacity has been increased annually and capacity is now for 2 million cases of wine.
Produces $20+/bottle quality of wine. But also has high quality wines for up to $70/bottle.
Industry
"Wine industry experienced dramatic declines in global wine production volumes to levels not seen in 50 years. Due to extreme weather in France, Italy and Spain, worldwide production is estimated to have fallen 8% in 2017. France is facing its worst harvest since 1945 with production volumes down 19%... over the next 12 to 24 months, wine prices should increase as the industry struggles to meet demand.
"Scheid vineyards is plowing back their cash flow back into the company to build long term value"
Valuation
The company owns 1,892 acres of vineyards. These were appraised at $190.5M in 2018 including vineyards and winery, but excluding two land parcels in Greenfield, vineyard equipment and inventories
Company recently annexed two parcels of land, about 130 acres, in May 2018. They have been rezoned for commercial and residential. They intend to sell. Estimated value is $150,000/acre = $18.5M in value (TO BE VERIFIED)
Competitors: Crimson Wine Group (CWGL), Treasury Wine Estates (TSRYY), Willamette Valley Vineyards (WVVI)
Founder and Chariman is Al Scheid. He has a book on Amazon called Breaking Out of Beerport (a memoir).
"management is adamant that they have no plans to sell"
Management complacency/no care for stock price... family controlled
Accountant is Moss-Adams LLP, a top 15 accounting firm
Summary: 11 vineyards and 2 winerys in California. Started in 1972, went public in mid-1990s. Today a vertically integrated producer of wine. Winery and vineyards in California with $190.5M of value (2018 appraisal) + $15M in non-operating land + $57M in inventories + cash and other assets - $100M in debt = NAV of $200/share versus share price of $85... on the earnings side, the company trades at 20x PE reportedly because they have been spending on people and infrastructure to grow for the future. There is potential upside in earnings and current operations has capacity of 2,000,000 bottles of wine (currently produce 517,000). So upside on earnings, but uncertain. Part of growth story is shift from selling just grapes to branded and private label products where they sold 151,000 cases in 2015 and now at 517,000 cases with capacity for 2M cases. They partnered with large retailers and airlines for private label Scheid Winds. Family owns 41% of stock and has demonstrated unlocking value by annexing properties, increasing capacity, and building wind turbine to power winery. Risks: for years company was dark and trades over the counter so investor communication is limited.