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Matthias Knab, Opalesque: Ben Axler of Spruce Point Capital Management writes on Harvest Exchange:
With shares up nearly 1,000% and now trading at historic valuation multiples since selling investors on a transformation to a branded liquor producer, investors should be extremely cautious.
- Substantial new whiskey/bourbon capacity coming to market in 2017. Diageo, a material customer close to completing a new $110m distillery, could cancel/reduce its supply contract, or compete directly with MGPI.
- MGPI's recent brand introductions appear to be flops, and it must turn over its ballooning inventory, otherwise face a liquidity crunch. It has no cash, record debt and insiders are selling.
- Accounting warning: New language in footnotes suggest possibility of material adjustments required. In 2016, MGPI is also quietly restating 2015 related party purchases and sales figures, after the CFO resigned.
- MGPI is valued at peak multiples (assumes it's already a successfully branded liquor company). In reality it's a pure commodity company. At 1x sales and 14x-16x p/e, we see 60-70%.
Report Entitled "Intoxicated By The Moonshine"
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