Description

Based in Napa, CA, Crimson Wine Group, Ltd. (“CWGL”) is an owner and operator of boutique, estate-based wineries that produce in the finest wine growing regions of California, Oregon and Washington.  The company’s wineries include Pine Ridge Vineyards, Seghesio Family Vineyards, Archery Summit Winery, Chamisal Vineyards, Double Canyon Vineyards and Seven Hills Winery.  Founded in 1991, CWGL was for years a division of well-known conglomerate Leucadia National Corporation (NYSE: LUK).  In 2013, in conjunction with Leucadia’s acquisition of investment banking firm Jefferies LLC, LUK leadership Joseph Steinberg and Ian Cumming believed value would be better realized for LUK shareholders through a tax-free spin-off of CWGL to LUK shareholders, which was completed in February of that year when LUK common shareholders received one share of CWGL for every ten shares of LUK owned. 

This idea has been written up 3 times in past years on VIC, including by me, at higher prices.  Timing may be better now given the recent crisis, and as in the past, this stock is best suited for individual investors given the illiquidity.

I see four reasons to consider the stock here:

1)  Substantial insider buying in 2020 from both Joe Steinberg and John Cumming through pre-arranged 10b5-1 plans, at prices as much as 45% above the current bid.  In addition, the Chief Winemaker & COO made small personal purchases as recently as March 23rd.

2)  The stock is trading at the lowest price it has seen since becoming independent of Jefferies.

3)  With a tangible book value per share of $8.32, the stock has 56% upside to tangible book.  Again, Pine Ridge was purchased in 1991 and real estate prices in California are dramatically higher today. 

4)  Plenty of liquidity, with $19mm of the company's $22mm of term loans due 4+ years away.

I suspect that the private market value here would be maximized in a sale to a third party.  Steinberg & Cumming have been purchasing the stock in recent years, and aggressively purchased shares as high as $9.73 in 2018 according to the records at my disposal.  There is presently 83% upside to that $9.73 price, which would still only be a small premium to tangible book.

Recent insider transactions:

Disclaimer:  The author of this idea presently has a long position in securities of this issuer and may trade in and out of these positions without notice.  The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates.  No representation or warranty is made as to the accuracy of the data or opinions contained herein.  Please do your own research.

Catalyst

- Sale of the company
- Investor awareness
- Time/price