Barron’s: Check Out Crimson Wine…For The Discounts?

Barron’s had a couple of pieces on spinoffs a couple of weeks ago, one of which focused on Leucadia’s (LUK) recent spinoff of the Crimson Wine Group (CWGL), its small winery business. For a ‘refresher’ on the transaction, check out our earlier coverage here and here.

The company is listed on the OTC Pink Sheets and currently trading at $8.90 for a ~$217m market cap. The name has generated some heated opinions on both sides of coin, with detractors questioning the valuation and legitimacy of a so-called ‘pet project’ and promoters touting the high potential upside backed by asset value. Barron’s acknowledges some of this in its piece and notes that company is somewhat difficult to value:

It’s not easy to value Crimson because it had modest revenue last year of $48.8 million, making it a tiny player in the $35 billion U.S. wine market. Operating profits were a mere $5.4 million. Crimson produced 260,000 cases of wine in 2012, just 0.1% of California’s wine production.

When measured against book value, which stood at nearly $8 a share on March 31, the shares look reasonable. The company has an excellent balance sheet with no debt and cash of $20 million. Book value appears to be conservatively calculated. Crimson sold a small amount of what it called “nonstrategic” Napa vineyards for about 1.7 times book value earlier this year. Crimson’s 156 acres of Napa vineyards are valuable, since land in that prime California grape region often sells for more than $300,000 an acre.

Book value is certainly a good place to start for valuing a winery business, but then the author notes quite an unusual ‘positive’:

…while it pays no dividend, Crimson offers other benefits to shareholders, notably a 20% discount on its wines purchased on its Website and discounts on membership to its wine clubs.

and closes off with:

…Crimson amounts to a bet on management’s ability to profitably expand. Investors can take comfort in what appears to be a solid book value and perks unavailable on other stocks, including discounts on some great wines.

There are other companies which offer shareholder benefits, but you rarely see those discussed in any ‘Buy’ recommendation. If you are a heavy drinker of Crimson’s wines (think the cast of Cougar Town) then it definitely makes sense to buy a share and rack up the discounts, otherwise, you are better off making your decision based on something more real, like BV. The company has a long way to go and a lot to prove in the coming years, but this is certainly an interesting name to watch.

Disclosure: Author holds no position in any stock mentioned.