General Chat, page-51

Lets complete a back of the envelope valuation of the assets held by MCL to see if we can calculate the Enterprise Value for the business.

In doing so, I will apply conservative values, not those espoused by MCL management, so will discount stated Market Values by 50%.

Applying a discount to assets is necessary to account for the inevitable devaluation of assets in a rising interest rate environment. Keeping in mind most assets were acquired when the RBA cash rate was 0.10%.

1) MCL's main asset - that they overpaid for - is the Adelaide Hills Group purchase price $47M. The business was acquired June 2021, in the middle of covid lockdowns. Management then bizarrely proceeded to blame covid for the underperformance of the business.

AHG comprises brands such as Adelaide Hills Cider, Mismatch, and 78 degrees. It also includes the venues Lot 100 and Mismatch pub in Whitmore Square, Adelaide. As a local, I can vouch for the quality of these South Australian products, probably the reason I invested in the first place (oh to take that decision back !). I haven't visited Lot 100 but by all accounts it is an amazing venue. We had a work function at the Mismatch pub last week and I can attest the food and drink is very good. It is also busy with punters which is a positive sign.

While management constantly talk up synergies, scale and integration, I doubt MCL have added any value to the group since acquisition. The group recorded FY22 EBDITA of $3.4M which is roughly 50% lower than the forecast profit at time of acquisition.

Amended Value $25M.

2) KI Spirits - Purchased for $1.5M when Founders First listed in 2019. The group have spent tens of thousands refurbishing the distillery and front end experience. It is a must visit if you ever visit KI. It would be worth more than purchase price today but for this exercise lets assign original purchase price of $1.5M

3) Better Beer - The groups unicorn asset that came about purely by chance, and possibly the only reason many MCL investors are hanging on to their shares. An initial investment of $250K by subsidiary Torquay Beverages for a 33% stake in Better Beer, it is worth many millions more today. The business is currently selling 1M litres of beer every month. Very difficult to apply a value but conservatively worth $50M that equates to $15M for MCL's share.

4) Hidden Lake - The sleeper asset, the group hold 417,000 litres of whisky under maturation. The only pure whisky distiller to compare on the ASX is Tasmanian producer Lark (LRK). They have a market cap today of $131M and hold 2.35M litres under maturation, that equals $55 per litre. Using this as a guide, I estimate the Market Value of our whisky holdings as $22M, so lets say $11M to be conservative.

5) Subsidiary (non core) brands - Jetty Road, Sauce, Seven Seasons, Foghorn etc. I don't believe any of these brands are profitable, in fact, probably cost the group to keep them running in terms of capital and overheads. Also explains why they are not attractive to investors and the group's divestment strategy has stalled. Market Value $0.00M.

So all up, total Enterprise Value of $52M that I think you conservatively say the group is worth.

Based on the 359M shares on issue equates to a share price of 14.5c per share.

Of course, the share price is trading lower and is under pressure due to other reasons, management have mindlessly pursued a FY25 growth strategy without regard to sustainable earnings, mismanaged cashflow and carry too much debt. So definitely not a recommendation or a guide, do your own research.