Re: Baron de ley, esa gran desconocida
Hello!
Please excuse me, but my spanish is very bad, I have been using the google translate to read your comments. I am in the process of research on BDL and through google search i found this board. You know you are the only ones in the world who seem to be noticing this little company! Anyway i was very happy to find you so I have someone to discuss the questions i have.
In my research i have found the following:
This company is well run. The managing director and majority owner was originally an accountant in PWC many years ago. Then he worked at Banco Urquija overseeing various winery related assets. Then when Urquija sold some assets to Bass plc (now part of ABInbev) he went to them. Then with private equity assistance he arranged a spin off. Subsequently the private equity house sold down the stake after the 1997 listing while Mr Santo Ruiz Diaz (SRD) increased his control.
Through his background in accounting and experience with finance SRD seems to have become a very disciplined and capable investor and manager of wine assets. Between 2001 and 2005 the annual report was very very detailed with detailed discussions about investing in vineyard technology and meeting profitability and return on capital. These detailed annual reports stopped after 2005 so it is not so clear the management's thinking since then but from looking at their results I think they continue to follow a sensible and conservative method.
Some comments on the business:
1. The main assets is El Coto. Even though there is a lot of talk in the CNMV reports about Maximo, El Meson, Museum, Baron de Ley and Dehesa....El Coto creates more than 75% of the profits. Hence one important question that i was hoping you Spaniards could answer is what is your opinion of El Coto? Who are the key distributers and retailers? What are the market shares of El Coto? Does it dominate the Rioja market? Does it increase share of market or is it declining? Who are the key direct competing brands?
2. Most of the rest of the profit (25%) comes from Baron De Ley while all the other brands make nearly nothing or lose a bit (not a lot thanks god!).
3. The financials of the overall business are very encouraging. I think this business can create after tax and after basic capital reinvestment for barrels and vines: 30m euro per year. Also, even if the wine demand continues to weaken BDL has a flexible margin as many grapes are purchased and grape prices will weaken. So if revenues decline so too will many of their costs. This should protect the ability to make about 30m. The main risk to this 30m is if El Coto is a bad and dying brand.
4. Some of the profits over the years have been used to create new wines: Maximo (a non DO varietals blend), Museum (high end rioja), and Dehesa to turn pigs into sausages and ham an more recently Carbonera Bergasa which is a new vineyard to grow white rioja. So far all these businesses are not very interesting but even so SRD has not been reckless with his investments. He has been making 30m free cash flow or more per years for about five years and from this he has puts an average of 6m per years to fund this new ventures. Maybe they will become good and anyways the downside is limited. The land and and machinery liquidation values are probably close to the cost.
5. The balance sheet is sound with 103m of cash and deposits and 63m of loans (guess based on q1 result and 2012 audit). Furthermore there are between 60m and 70m liters of wine in inventory. If we shut the company tomorrow, stopped costs for new wine and just sold the inventory, after tax and marketing costs the company could probably realize more than 160m euros net cash. Obviously while El Coto and Baron de Ley brands continue to make 30m a year in free cash they should not liquidate though! I have a question about why the company doesn't discharge the loans using the cash on hand? I see from accounts that the cash is in a number of deposits extending for up to 2013 - I hope the bank doesn't go bust!
6. The way the company has been run for the last 5 years with the large reduction in shares outstanding and the accumulation of substantial cash implies three possibilities: 1. Privatisation 2. Desire to acquire competitors 3. Comfortable laziness of a rich man who likes wine and has enough money and has no desire to pay taxes on dividends!
7. What are the privatization laws in Spain regarding minority shareholders. What are the important levels for squeeze outs and mandatory offers?
8. What private competitors exist that he might want to buy? And maybe if he finds a good deal this is actually a good thing. In the early annual reports he often used to talk about how the industry was too fragmented and needed to rationalize. So this makes me think he want the money for acquisitions. But on the other hand whenever he sets up these new little wine ventures over the last years he is always doing greenfield projects rather than buying established competitors, so this makes me think he isn't interested in big purchases of established brands. Or maybe he wants to do this but the competitors aren't willing to sell yet?
If any of you want to see what kind of manager he is i recommend to read the reports from 2001 to 2005. It is clear that he is a very determined and capable manager who want to have the best vineyards using the most advanced techniques.
What this company is worth will depend on answering these questions. Of particular importance is whether El Coto is strong and healthy. And then the other is what are the legalities for minority shareholders? Who determines squeeze out prices etc? If anyone can help me with these i thank you many times!