Unlisted investments are, at the best of times, an acquired taste. Comment on financial periods can be sparse, trade in the shares can be non-existent and investor correspondence sporadic. As reported in previous columns, I determinedly snagged a holding in unlisted premium Scotch maker Capevin (now CVH Spirits) three years ago when it separated out of Distell (which was being merged into Heineken Beverages).
Times were good for the whisky sector back then. These days it’s hardly a barrel of fun, with whisky — along with most hard tack — experiencing a worrying slump in demand. Whether this nasty trend is here to stay, I just don’t know. But when I can’t even twist my son’s arm to have a beer after thrashing me in a padel game, then perhaps I should be worried about the abstemious habits of the young folk. When I was his age, drinking was a sport.
In any event, I have recently been called out on Capevin, which, as one reader eloquently put it, “no longer seems like your favourite tipple”. It hardly matters whether it’s my favourite or not — I’m stuck with it because there is no market, not even an informal trading hub, for the unlisted shares.
Not that I would sell at this rather sombre juncture. But longer term (and provided I don’t need urgent capital for a knee replacement), I’d be inclined to still back Capevin. The company owns an impressive array of premium Scotch brands that I certainly can’t afford (or pronounce) — notably, single-malts Bunnahabhain, Deanston, Tobermory and Ledaig. The company also makes blended whiskies Scottish Leader and Black Bottle. Full disclosure: I have sampled the former on occasion.
But let’s not forget one huge blessing — Capevin’s excellent timing in selling off its gin distribution interests for R1bn about three years ago when that market was a lot more spirited. The “Gordon’s Gin” deal certainly fortified the balance sheet and, who knows, may even allow Capevin some leeway in picking up niche Scotch brands offered by desperate sellers at reasonable prices.
That said, the recent valuation unwind at Capevin has been quite spectacular. Remgro, the biggest shareholder with a 33.6% stake, lowered its valuation of Capevin by almost a quarter “in context of significant industry-wide downturn and associated derating of the sector” in the 12 months to end-June. Remgro added that the decrease was broadly in line with movements in equity values of peers, which had declined up to 25%.
Clearly the Stellenbosch investment house is erring on the side of conservative. But the fact is that Capevin’s bottom line loss widened markedly off a 5.9% decline in net revenue to R1.8bn on weaker Scotch demand and distributor inventory normalisation. It’s not pretty, and a proper recovery still looks some way off. In the meantime, Capevin has been restructured to cut back-office costs and bolster sales capability.
In terms of referencing a value for Capevin, the latest estimate from Remgro infers a valuation of about R2.5bn. That’s a far cry from 2023, when Remgro’s stake was valued at R1.9bn and inferred a R5.7bn total valuation on Capevin. It’s worth remembering Capevin shareholders “received” their shares (after the Distell/Heineken deal) at R15/share. On the latest valuation by Remgro, those shares are now worth about R11.50 apiece.
That number, it must be stressed, is through the Remgro value lens. We should remember that others, especially those in the international liquor trade, might see the value very differently … and, indeed, have done just that previously. As recently as late 2024, global drinks giant Campari cheerfully forked out almost R50/share, or R1.63bn, to snag a 14.6% stake in Capevin. The way I understand it, Campari had an option to acquire an extra 0.8% of Capevin, which the group must have exercised since I see the stake now stands at 15.4%.
I suppose my question is: if Campari was enthusiastic to buy into Capevin at an effective R50/share, then would it not be extra keen to mop up some more shares with a lower offer? Remgro does not look like a seller, but other shareholders might be willing to entertain an offer that is pitched at a stiff premium to the latest inferred share price. Such a pitch would certainly be markedly lower than Campari’s earlier buy-in price.
Unfortunately, Campari’s investor presentations and latest financials don’t offer an abundance of clues. But there are a number of operations that have been sold or are slated for sale, including the old Bisquit business that Campari bought from Distell in 2017 for $62m. Capevin is not in the disposal basket, as far as I can ascertain.
But there is no way to establish if Campari, which is clearly focusing intensely on its apertif portfolio, wants to extend its influence in the Scotch maker. In fact, between the annual report, the interim report and a couple of investor presentations, there is nary a mention of Capevin. Remgro, as we know, is floating on an ocean of cash, and the group’s founding family certainly knows the value of enduring premium brands.
