I recently attended the annual meeting of Crimson Wine Group, the owner of 5 wine estates that was spun off from Leucadia in 2013. In the tradition of Leucadia, Crimson does not communicate with Wall Street. There are no earnings press releases, conference calls or presentations and management does not take phone calls. The only way to get information from Crimson is through their SEC filings. When I heard that Crimson would have a Q&A at their Annual Shareholders Meeting I decided to make the trip to Napa as I had a number of questions for management.
The annual meeting took place in a wine cave at the Pine Ridge estate. Ian Cummings (Leucadia co-founder) was supposed to host the event but due to a surgery Joseph Steinberg (Leucadia co-founder) did so in his place. Joseph Steinberg has a reputation for being the bad cop to Ian Cummings good cop and he lived up to his reputation. When asked why Crimson was spun off he answered, “because we wanted to”. Management declined to answer many of the questions but I learned a good deal about the company none the less.
The first question I asked the CEO was about a newspaper article that quoted him as saying that he wanted to reach $100 million in revenue by 2016. He seemed to back off that statement and said that he wished he did not say it. In addition, Joseph Steinberg emphasized numerous times not to have too high expectations for the short term as progress in the wine business takes time.
The most important piece of information I came away with from the meeting was finding out why Joseph Steinberg believes Crimson is a good investment. Joseph Steinberg alluded to the private market value of the wine estates being well above the GAAP book value. He called Napa the Hamptons of the Bay Area and noted how much prices have gone up since they purchased the estates. He also noted that as the Hamptons of the Bay Area, Napa/Sonoma real estate prices are likely to continue to rise over time. Steinberg views the rise in the estate values as part of his profits in addition to the profit of the actual wine business.
When an attendee asked Joseph Steinberg to value the five wine estates he replied “I’m not going to give you the NAV. You’re an analyst. I’m sure you can figure it out for yourself”. As an analyst I have taken many stabs at trying to figure the value of Crimson’s five estates and I believe that they are conservatively worth $15.50 a share (likely more). Assuming 3% a year asset appreciation on $15.50 of assets yields an additional 5% a year of return in asset appreciation on top of any earnings (at the current stock price).
Joseph Steinberg spent most of the meeting playing down expectations and noting that progress takes time and patience in the wine business. However, he ended the meeting with a vote of confidence for the stock telling shareholders “we will get rich together slowly”.