Scheid Vineyards (SVIN): An Extreme Undervaluation Hiding in the Dark

Note I initially prepared last week. Some price numbers need revision. It’s a work in process that I expect updated with additional commentary. But if I don’t press save now. It never gets posted. 

Scheid Vineyards produces and sells wine. Operations cover around 4,200 acres in Monterey County, California and their ten vineyards offer 29 grape varieties. For the first 15 years, Scheid was a grape farmer that sold its harvest to wineries. The company was founded in 1971 when Al Scheid purchased his first property in Monterey County.

SVIN went dark during 2016. Filed a 15-12G with the SEC to avoid the cost and distractions of SarbOx compliance. This move is negative for shareholders. 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 opportunity is simple but FAR FROM CERTAIN. A deep discount to the sum of its parts with a future focus on improving existing operations with a branded wine product.

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 finance sites have different MC values.

Google finance Market Cap = 11.03M, Yahoo=32.881M, OTCMarkets = 11,461,395.Morningstar =  15.3649 Mil, Reuters = 11.03M

The public peers don’t have the same benefit of enterprise value to vineyard acreage ownership.

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.”

Asset trading at fraction of market value. Appreciation from real estate and modern production facilities (new wind turbine power winery) provides an inflation hedge and cushion to help fund/stabilize as they 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

Positive valuation discounts compared to closest public peers; CWGL,  WVVI, New IPO NAPA, and Treasury Wine Estates ASX:TWE. SVIN multiples are near historical lows for P/B, P/S.

The inventory book value of 53.08 per share is below market value retail inventory values from $35 to $185 per bottle. Further, private labels for supermarkets such as Kroger, to captive audiences such as cruise lines and airplanes.

Catalysts:

Management is publishing financial statements and updates providing more public transparency. The market will slowly recognize its higher fair value.

A continued focus and migration towards selling a branded wine over Grape input improving intrinsic value.

Lease buyback or sale of the vineyards and relisting on NASDAQ to raise capital.

LONG:SVIN