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”.
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