Investing in MGP Stock...Yay or Nay?

[angela1120]

Hi everyone!  I am not nearly as knowledgeable & passionate about whiskey / bourbon as most folks on here.  To be honest, I signed up for this website because I am looking at investing in MGP's stock.  Given the continued large growth in demand for whiskey, I thought it might make sense to buy some MGP stock for my family's retirement and college fund accounts.  However, I did have once question / concern regarding their business. Given all the knowledgeable people on this board, I figured I would ask for opinions on here.

 

Over the past year, the sales of MGP's unaged distillate appears to have almost tripled (as shown by the huge increase in their warehouse / storage revenue). My question is why has unaged distillate revenue all of a sudden exploded? The whiskey industry has been growing at a fast rate for a few years now. This is not just a recent phenomenon. So what is MGP doing differently over the past year to triple their unaged distillate sales? Are they charging a low price for the unaged barrel or charging very low storage fees? I am worried that the company's customers are basically taking advantage of low prices to stock up on whiskey barrels today...However, once they finish stocking up on barrels, I am worried that MGP's sales may fall off a cliff.  In other words, are MGP's customers simply stocking up and buying much more whiskey than they actually currently need?

 

Do you think that my concerns are legitimate? Or is the huge increase in MGP's unaged distillate sales a natural extension of the whiskey / bourbon boom? It appears it may not be given that whiskey sales are growing at ~5% while bourbon sales are growing at ~35% per year.  This rate is much less than MGP's approximately tripling of unaged distillate sales over the past year.  

 

Any help / insights in regards to this would be greatly appreciated. Thanks in advance!

 

Angela

[Harry in WashDC]

So, Angela, I didn't see a post from you over on "New to Straight Bourbon".  Where abouts are you located, and what are your favorite bourbons (and other whiskeys/whiskies/beers/spirits - we have threads on all those things)?  RE: MGP, I am one of a handful of persons here who REALLY like Metze's Select.  Many of us like the spice/mint bomb of the really high rye RYE (the 95er).  Some of us are also partial to their 75% corn mash bill (which High West uses sometimes).  And, in spite of our disdain for misleading advertising, Bulleit Rye is an excellent example of what NDPs can do with MGP 95 rye.

 

For more info on what SBers think of MGP's products, do a search up in the bar under the header for "MGP" or "Lawrenceburg" or "LDI".  For specific and professional investment info on whether MGP is a good investment, I think you are in the wrong place.  Our money goes into acquiring bottles for consumption, not into the companies that make what we consume.  All is not lost, however; without us, those companies would be making products nobody would buy. 

 

Seriously, do some of those searches here and read what we have written and then draw your own conclusions.  Our comments are candid, sincere, and made with love of a product we cannot live without, more or less.

 

Harry

Edited July 14, 2016 by Harry in WashDC
added LDI which as we know is Lawrenceburg to the outside.

[dcbt]

Hi Angela -
 

I looked into purchasing this stock a year or so ago as well.  I never did because there is not much liquidity in it (at least when I was looking at it).  Maybe that has improved, but when I was looking at it, either the spread was far too large, or it was too difficult to acquire the volume to make it worth allocating the capital to it.

Edited July 14, 2016 by dcbt

[b1gcountry]

Investing is a totally different pursuit than ingesting. The things that make whiskey great are not necessarily the same things that make a good investment. Because of the current boom, this might be a horrible time to invest in the industry. I also shy away from investing in things I consider hobbies.

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[Thig]

I think one of the reasons sales for MGP has increased is because the major distilleries can barely meet their own need. They don't have as much excess available for the NDPs so MGP has taken up their slack.

[Harry in WashDC]

3 minutes ago, Thig said:

I think one of the reasons sales for MGP has increased is because the major distilleries can barely meet their own need. They don't have as much excess available for the NDPs so MGP has taken up their slack.

Agreed.  At WhiskyFestDC, I asked Greg Metze, et al, at the MGP table about their expansion plans, especially the increase in mash bills available (I don't think the rickhouse expansion had been announced by then).  He demurred to the sales rep there, and she told me they expanded their product line to satisfy requests from NDPs.  When I asked if they would be selling their won products at retail, they just smiled - neither confirming or denying.

 

Given their size, that would take a LOT of NDP orders to soak up the expansion they are building for.  I haven't looked at their non-beverage business in awhile so have no sense of whether it is growing over "there" as well.

[angela1120]

Thanks for all the helpful replies guys!  One additional question, it appears that MGP has transitioned from selling a mix of aged and unaged distillate to just purely selling unaged distillate at this point.  Is MGP sacrificing a lot of future profit by doing this?  From what I understand, the value of a barrel goes up around $75 or so for every year it is aged.  On the flipside, the storage fees that MGP charges for unaged barrels is around $1.15 per month.  Wouldn't MGP be better off letting some of its unaged whiskey age for 3-4 years and then selling it at a higher price point / margin?  

[Harry in WashDC]

Excellent question, Angela, and something I wondered about.  I don't know if they are sacrificing future profit.  Shortly (like, minutes) after I posted above, I visited their website and noted that their sales to NDPs represented a huge part of their net profit increase - i.e., margins are exceptionally favorable.  If you haven't already, go read ALL their "Investor Info" info, particularly the footnotes to their financial statements, for the last two years at least, and draw your own conclusions.

 

Speculating here: DO NOT RELY ON ME - With their new rickhouse space, perhaps they are planning on selling (1) both (a) new make and (b) aged product to NDPs as well as (2) products under their own labels.  That's certainly not unheard of - HH and 4R did this for years.  So did the previous owners of MGP/LDI - remember Seagram's.

 

Disclosure (which I've posted before):  I do own (and have owned for a long time) a few shares of MGPI.  BUT, as dcbt posted above, the stock is (and has been for quite awhile) thinly traded, the offer/sale spread is pretty wide, PE is about 20 right now, and I have not added to my initial position (at that time REALLY speculative - "Are they going into bankruptcy or not?"  - to show you how long ago).

 

But regardless of MGP's stock price, I really do like their products, and some of the NDPs have made stellar offerings with them.  THAT's what is really important to me.

Edited July 17, 2016 by Harry in WashDC

[portwood]

On 7/14/2016 at 7:57 AM, b1gcountry said:

Investing is a totally different pursuit than ingesting. The things that make whiskey great are not necessarily the same things that make a good investment. Because of the current boom, this might be a horrible time to invest in the industry. I also shy away from investing in things I consider hobbies.

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Best time to invest in good companies is when nobody is talking about them (low demand for the stock = relatively low price compared to quality). This isn't that time wrt MGPI ... or any other whisky maker for that matter!