Scheid Vineyards: An Extreme Undervaluation Hiding in the Dark

Scheid Vineyards produces and markets wine. And, their operations cover around 4,200 acreages, with ten vineyards offering 29 grape varieties. For the first 15 years, Scheid was a grape farmer selling its harvest to wineries. The company was established in 1971 when Al Scheid acquired his first property in Monterey County.

SVIN went dark in 2016. Therefore, a 15-12G was filed with the SEC to avoid the cost and distractions of SarbOx compliance. The move was negative for shareholders as a going dark transaction causes illiquidity from a reduced float, larger price spread. And difficulty obtaining financial data from a majority-owned and managed family operation.

The investment thesis is simple but FAR FROM CERTAIN. The rationale, it’s a deep discount to the sum of its parts with a future focus on improving existing operations with a branded wine.

Price=$15.75 ; EV per share= 128.60 ;Market Cap=16.71M ;Enterprise Value=136.49M

52 Week Range= $13.79 - $23.25 ; 52-Week Chg = -25.00%

TB Per Share=29.12; P/TB=.52, EV/Rev=2.58 ; P/S=.25

I believe my numbers are accurate, backing into the market value using the shares outstanding. But multiple financial sites have different MC values.

Google finance Market Cap = 11.03M, Yahoo=32.881M, OTCMarkets = 11.461M,Morningstar =  15.36M, Reuters = 11.03M

I am bullish as it trades below intrinsic value. But, RECOGNIZE that offsetting the asset's fair value is a capital-destroying family-held company. For example, shareholder equity declined -30.33% or -11.206M over the prior 24 prior quarters. EBIT aggregated over the same 24 prior quarters was -10.564M, EBITDA +24.433M.

Below is an attempt at a fair market NAV per share estimate. I started with reported book values (04/06/21) to arrive at an estimated fair market value. No market premium was placed on the existing operation (modern winery) but instead, my guess at conservative market values in a fire sale.

Scheid Vineyards has much higher ownership of vineyard acreage to enterprise value versus their public peers. 

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Opportunities:

In addition to Vineyards and a state-of-the-art processing plant, there is an additional 123 acres of non-agricultural land now zoned for residential development in Greenfield City Monterey County, California. The market value (my guess) is around 10M to 15M.

Vision Statement: "By 2025, Scheid Family Wines will become one of the most recognized wine producers in quality, innovation, and sustainability in the world."

The assets trade at a fraction of market value. Appreciation from real estate and modern production facilities (new wind turbine power) provides an inflation hedge and cushion to help fund/stabilize as they further develop retail/commercial operations.

Strategic shift to a branded business, emphasizes finished goods over selling inputs. I wrote my thoughts above before Friday's 04/02/21 announcement. "Scheid Family Wines Announces Sale of Three Vineyard Properties." "announced today that it sold three of its vineyard parcels for $33,000,000 in consideration, which includes the buyer assuming $20,000,000 of the Company's debt that was secured by the properties. "

https://finance.yahoo.com/news/scheid-family-wines-announces-sale-100000205.html

A positive valuation discount compared to its closest public peers; CWGL, WVVI, New IPO NAPA, and Treasury Wine Estates ASX:TWE. Further, SVIN multiples are near historical lows for P/B, P/S and have a higher land and building ownership to its enterprise value.

The inventory book value is 53.08 per share. And, the recorded accounting value is below its fair market value. Scheid's wine retails from $35 to $185 per bottle. Further, lower margins sales for private labels sold in supermarkets such as Kroger, also cruise lines and airplanes.

https://www.scheidvineyards.com/Wines

Risks:

The grape business is risky; from planting to harvest, bottling and customer sale. Weather, supply, quality factors are out of Scheid's control.

The fair market value of existing tangible assets is substantial. Still, it's financially weakened from excessive debt issuance and interest expense over the years, Coupled with declines in gross margins, revenue per share, and multiple years of operating losses. The company continues to burn cash, reducing the terminal value of existing real estate holdings-a capital-destroying operation for the past decade.

No evidence of any self-dealing. But it's a risk.

Catalysts:

Management makes financial statements and operational transparency more accessible to the public. The market will slowly recognize its value.

After my original write-up, Scheid reported property sales on April 2. The press gave the stock visibility, and the price slowly reacted positively. "Scheid Family Wines Announces Sale of Three Vineyard Properties."  A fraction of their total asset ownership.

https://finance.yahoo.com/news/scheid-family-wines-announces-sale-100000205.html

A continued focus towards selling a branded wine over Grapes. Hence, improving intrinsic value.

A lease buyback or sale of vineyards and relisting on NASDAQ to raise capital and improve market multiples.

LONG:SVIN