The Artisanal Spirits Company, through its ownership of the Scotch Malt Whisky Society is well positioned to enjoy sustainable growth. The company boasts growing membership numbers, rising spend per member and a unique approach to sourcing some of the world’s most cherished super-premium malt whiskies. In our view, these qualities are not reflected in the current share price which implies scope for a rerating of the shares as the growth proposition becomes better understood.
ASC is already a high gross margin business and appears likely to become more so. The company is confident it can increase gross margins in the next decade from their current year expected 63% level to nearer 70% as the cost of its purchases of whisky stock drop by around £2 per bottle. In our view gross margin strength should offset investor concerns about the current lack of bottom-line profitability. Moreover, EBITDA was positive in H1. SMWS enjoys a substantial asset backing in terms of maturing whisky stock. The company estimates that on 31st August 2021 the realisable retail value of its inventory of in-cask super premium whisky is of the order of £350m. We think investors should note the value of these Scotch whisky assets in the context of the current ASC market capitalisation.
We conclude that a fair value for The Artisanal Spirits Company is 150p / share based on relative value analysis covering not only EV/sales, but also comparative gross margins.