Buffett Style Valuation, page-10

2sigma. I disagree with your key assumptions.

1. Your average vineyard valuation of $150-200k/Ha is not realistic. Cherry picking the highest vineyard values from a 2018 article and applying them to all of TWE holdings is not sound. Firstly, 2018 was the peak of vineyard values at a time when Chinese appetite looked to be insatiable. To say that you don’t care about the downturn in the China opportunity because TWE have valuable real estate is contradictory. The sky high real estate values were directly related to the Chinese demand. The article quotes the Connors Farm vineyard in McLaren Vale for which TWE paid $80k/Ha in 2017. This is a super premium vineyard compared to the majority of TWE vineyards. The values you applied to TWE were only relevant for small renowned Barossa holdings (<30Ha) because that market is highly competitive between established boutique producers, ‘wannabe’ producers, and lifestyle farmers. The average TWE vineyard is 122Ha, of which the average price is probably more like $40k/Ha. And if TWE needed to liquidate these assets in a short time frame it would be more like $25k/Ha. The wine industry is on edge, nobody wants to increase their exposure by increasing their vineyard holdings. While TWE share price has lost 50% in the last 12 months, their vineyard valuations have probably fared worse.

2. I’m confident that Grange costs more than $30-$40/bottle to produce, store and market. They are still paying contract growers $15k/tonne for grapes. So if Grange was just freshly squeezed grape juice in the supermarket fridge then your assumption is fair. $70-$100/bottle is more believable.

3. Non-current inventory is not worth $175/bottle. This is an extremely generous stab in the dark even at the height of demand. Pre-Covid I’d be happy with a stab in the dark of $40/bottle. But as demand slumps the value plummets.

The key point is that the value of TWE assets can not be decoupled from China demand.