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Chapel Down Group‘s (LSE:CDGP) a penny inventory and it’s presents traders a novel and pretty compelling funding alternative.
Whereas the share worth has collapsed during the last 12 months, the inventory presents a mixture of tangible property, premium model worth, and strategic progress within the English wine sector.
Nevertheless, traders should additionally weigh operational dangers tied to agricultural volatility and market dynamics.
A possible undervaluation
In 2023, Chapel Down reported £34.3m in internet asset worth — that is the place numerous my curiosity lies. This contains high-quality, appreciating property resembling 1,023 acres of planted vineyards (414 hectares), with over 595 acres on Kent’s chalk-rich North Downs — a terroir corresponding to Champagne.
Curiously, the board famous that e book values doubtless understate market costs for these strategic land holdings and manufacturing infrastructure.
The corporate’s latest £32m Canterbury vineyard enlargement, authorised regardless of its Space of Excellent Pure Magnificence standing, will enhance manufacturing capability to 9m bottles yearly by 2032. That’s up from 1.5m in 2021. The group’s property embody £22.6m in wine inventory.
That is all significantly intriguing given the corporate’s at present valued at £57m. Subtracting the web debt place (£9.2m) from the corporate’s property (which could have appreciated given the debt-funded planting of 118 acres in Buckwell), the precise worth of operations is round £30m.
Is the enterprise value greater than £30m? Nicely, there’s numerous maths to do right here and a few unknowns. Will it have to tackle extra debt to achieve that 9m bottle goal for 2032? Nevertheless, assuming modest debt progress, my feeling is that the model’s undervalued, primarily based on asset worth, potential earnings progress within the 2030s, and its very robust model worth — Chapel Down enjoys unrivalled model status in English wine.
Dangers: agricultural volatility and market pressures
Nonetheless, there are some dangers that have to be accounted for. Wine manufacturing stays a really local weather dependent operation and the harvest for 2024 is predicted to be half the dimensions of that achieved in 2023. Administration has already downgraded its gross sales steerage.
This provides a level of jeopardy to the corporate’s enlargement plans. What’s extra, the agency has deserted plans to place itself up on the market, placing some downward strain on the inventory — buyouts usually raise shares increased. Furthermore, even after a blowout harvest, the inventory was buying and selling round 50 instances earnings. Clearly, this enterprise is valued on future earnings potential.
A threat value taking?
Chapel Down combines scarce, appreciating agricultural property with a luxurious model positioned to learn from English wine’s international emergence. Whereas uncovered to sector-wide local weather dangers, its scale (largest UK producer), vertical integration, and model fairness create margin benefits versus friends.
It’s actually an fascinating proposition. What’s extra, with 2,000 shares (£700’s value on the present share worth) I’d get 33% off all full-priced wines purchased instantly from Chapel Down. For sure, for those who serve it at your wedding ceremony, which I did, this shareholder profit pays for itself.
Deliver this all collectively, and weigh the dangers concerned within the enlargement, the inventory might be vastly undervalued. It’s one I’m contemplating fastidiously in the intervening time.
