Crimson Wine Group Ltd. (CWGL), Leucadia National Corporation (LUK): Is This Spin-off Winery an Investment Opportunity?

Crimson Wine Group Ltd. (PINK:CWGL) was spun off from Leucadia National Corporation (NYSE:LUK). Since Crimson became a publicly traded company, its stock price has advanced significantly, from around $8.20 per share to nearly $10 per share. Leucadia, on the other hand, has moved around a narrow range of around $26 per share. Is Crimson a good investment opportunity? Let’s dig deeper to find out.

Leucadia National (LUK)

Business snapshot

Crimson Wine Group Ltd. (PINK:CWGL), headquartered in Napa, California, is the producer and seller of premium, ultra premium and luxury wines with four wineries: Pine Ridge Vineyards, Archery Summit, Chamisal Vineyards, and Seghesio Family Vineyards. Crimson’s wine products are distributed in several U.S. states, including California, Illinois, Colorado, Hawaii, Arizona, and Nevada through Southern Wine and Spirits, which accounted for 15% of the company’s total sales in 2011.

The company reported that the majority of its domestic distributor wine sales, accounting for 13% of total 2011 wine sales, were generated in California. Crimson’s export sales increased with the acquisition of Seghesio Family Vineyards.

Asset-rich but poor-earning company

Between 2007 and 2010, Crimson’s consolidated revenue had fluctuated in the range of $21.1 million to $23.8 million. In 2011, its revenue increased significantly to $39.3 million. However, Crimson has consistently generated losses, which were in the range of $4.3 million to $7.2 million during the 2007-2011 period. The company just turned a profit of $783,000 on a total revenue of $34.27 million in the first nine months of 2012.

Thus, Crimson has been barely profitable. However, the pro-forma net income for the first nine months in 2012 was $4.53 million, as the pro-forma income statement eliminated a $3.9 million interest expense to Leucadia National Corporation (NYSE:LUK).

Crimson Wine Group Ltd. (PINK:CWGL) could be considered to be an asset-rich company. Crimson valued its Property and Equipment (PPE) at more than $108 million. However, according to Tsachy Mishal, Crimson’s PPE is at $265.2 million. Thus, its adjusted net tangible book value would be $326.3 million, or $13.34 per share.

At a current price of around $10 per share, Crimson is worth nearly $230 million on the market. It is valued at a 33% discount to its adjusted tangible book value, following the above-mentioned valuation of its PPE. Even if we assumed that it earned $6 million for 2012, the market values Crimson at a high valuation of 40.8 times trailing earnings.

The most expensive among peers

Compared to its peers, including Treasury Wine Estates and Vina Concha y Toro S.A. (ADR) (NYSE:VCO), Crimson Wine Group Ltd. (PINK:CWGL) is a much smaller company. Treasury Wine is the biggest company among the three. At nearly $6 per share, it is worth $3.9 billion on the market. Treasury Wine, founded in 1843, is a big Australian winery. The company had nearly 11,000 hectares of total vineyard resources. Vina Concha, a Chilean winery, is trading at around $42 per share, with a total market cap of nearly $1.6 billion.

Among the three, Crimson seems to have the highest valuation at 40.8 times earnings. Treasury Wine, at its current price, is valued at a similarly high valuation of nearly 37.7 times trailing earnings. Vina Concha has the lowest valuation at only 16.27 times trailing P/E. Vina Concha offers the juiciest dividend yield among the three at 2.6%, while Treasury Wine pays investors a dividend yielding 2.2%, and Crimson does not pay any dividends yet.

My Foolish take

Crimson Wine Group Ltd. (PINK:CWGL) seems to be an asset-rich but poor-earning company. Personally, I am not interested in Crimson at its current absolute high valuation. I would wait for a much lower price before I could initiate a long position in this winery.

The article Is This Spin-off Winery an Investment Opportunity? originally appeared on and is written by Anh HOANG.

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