Buffett Style Valuation, page-14

It’s not a fair comparison with RFF vineyards who have 550Ha in Tier 1 regions (Eg Barossa) and 110Ha in Tier 2 regions (Eg Coonawarra). Also, RFF is a different business model for vineyards: they only lease their vineyards while TWE only operate theirs. I hold RFF and consider their asset valuations akin to getting a jeweller to give you an insurance valuation.

I don’t believe TWE publish the size and location of their individual holdings but their Aussie vineyards are spread across all the major growing regions, including the ‘bulk wine’ regions of Riverland, Sunraysia and Riverina. I’ve visited many of them and I would guess it is 20% Tier 1, 30% Tier 2 and 50% bulk.

Excerpt from the article in the original post, regarding ‘bulk wine’ vineyards, written at the all-time peak of vineyard values: “A little over a year ago, these vineyards would have typically traded at around $20,000 per hectare, inclusive of water. At the time, water was valued at approximately $2800 to $3000/ML, so these vineyards were trading at around $3000 to $5000 per hectare exclusive of water. Current evidence is that vineyards in good condition are trading at more than $25,000 per hectare (without water) and, in some cases, more than $30,000 per hectare. And, with permanent water prices currently at $3200/ML the overall transaction is approaching $50,000 per hectare if permanent water is included. This is still below the cost of setting up a greenfield vineyard with full permanent water allocation, but nonetheless is a dramatic shift across these regions within a short time period.”

Since the article was written:
- vineyard prices have dropped
- water values skyrocketed a year ago and recently dropped back to similar levels as time of article.

So, it would be important to understand TWE’s water policy (own, long term lease, short term lease) to properly value their vineyard assets in the bulk wine regions.

Don’t presume established vineyards are worth more than the greenfield development cost. TWE (aka Fosters/Southcorp/Beringer Blass) has sold multiple vineyards (in Tier 2 regions) over the last 20 years for less than the cost of the land.

As for my lack of accounting skills, 2sigma is spot on, I probably do need to brush up on the terminology. But I’ve worked in and around the viticulture/wine industry for more than 20 years and currently consult to TWE growers (including those that supply grapes for Grange); I can assure you the COGS for Grange is much higher than $30-$40, if you factor in the cost of the grapes and winemaking (oak, tanks, staff, etc). I’d be interested to see where TWE management confirmed this in recent years. It was probably true in the early 2000’s.