Chapel Down Group

12th Jan '23 by Helvellyn

20 comments 1461 reads

For any holders or potential buyers .

French winemakers are purchasing land in the UK as things heat up | Metro News

My wife and I spent some time with friends over the Christmas holidays and met a chap who is an agent for some of the world's top wine producers. One topic of conversation was that of climate change, during which this chap told us that some of the top French Champagne houses had been buying up plots of land between the Weald of Kent and the South Downs because even though this area is 150 miles north of the Epernay, which apparently is the centre of the Champagne region, they think that the 'terroir'1 will very soon be perfect for growing Champagne grapes if the changes in our weather persist. As I had recently been looking at Chapel Down (OFEX:CDGP) as a potential investment I was intrigued. I know nothing about wine so asked this chap if he knew of Chapel Down and their wines. He told me that they had had a record harvest this year not only in quantity but also quality and apparently this makes a difference because the very hot weather at the right time of year meant that the grapes fully ripen and that means that they would not have to add sugar to the wine at a certain point in the fermentation which meant a) the finished product would taste better and b) there was a time and cost saving. He was losing me a bit at this point! Some of the grapes that Chapel Down grow, namely Pinot Noir, Pinot Meunier and Chardonnay are used to produce Champagne in France, but grown in England the wine made from them cannot be called Champagne but simply Sparkling Wine. I had read about the bumper harvest but did not know the rest of what he had told me . I had seen that there had been some director buying just after the harvest and the attached article confirmed the land purchases. I think the risk/reward here looks pretty good on a fairly long term investment with obvious execution and weather risk.

Chapel Down (OFEX:CDGP) has a market cap of £60m and is traded on AQSE and is not easy to but in any amount. The company has…

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jonno

12th Jan '23

Hi Helvellyn

Yes, Chapel Down does look interesting. As you say the land/vine yards are likely to be in the accounts at cost. I am aware that Boon, an informed Stockopedia contributor in my opinion, is keen on the company and I tend to agree with his views, although need to do some more homework.

There is a presentation of the recent results from Chapel Down (OFEX:CDGP) available at

Investor Meet Company - Home

It is free to view, but you need to register with the website, if you haven't already done so.

I am not a knowledgeable wine drinker, but have recently tasted some English sparkling wines, which are in my opinion very good, albeit they tend to be a little pricey.

All the best

bsharman

Hi,

I hold Chapel Down (OFEX:CDGP)

The assets (land) are valued in the account at cost from 2011 I recall. I live in Hampshire and there are numerous small and large vineyards in the area and across the south downs, which is chalk (same as the champagne region) - I even volunteered to harvest the grapes one year and got paid in sparkling wine, which was amazing! The "terroir and climate are perfect for growing champagne AKA English Sparkling Wine. and yes, a lot of French producers are buying up land in the area. https://www.thedrinksbusiness....

Personally, I think that the French will be sniffing around the English producers and buying up their own land as the climate becomes warmer (too warm) in the Champaigne region. At the moment the sparkling wines are expensive circa £35 a bottle but in blind taste tests many have beaten the French Champaigne.

A good business to be in.

Cheers!

Boon

Helvellyn - great to see some interest in Chapel Down from others on Stocko! I thoroughly enjoyed reading your article, and your chat with someone in the industry confirmed most of my primary hypothesis of investing.

Thanks jonno for the mention!

There's a lot going for it.

Asset backed. I make it around 18p per share NTAV, and as bsharman puts it, at the original cost value from ages ago. No doubt worth much more now.
Great harvest. Guarantees that sales of the wine will be much higher in 2023 (provided consumers can still spend) and foundations for sparkling wine growth in 2024-2026.
"Rollout in progress" in that they're planting more acreage every year, and as the vines mature they also produce more each year. Albeit slow and not a racy growth roll-out.
Letting climate change do the work for us; almost guaranteed that Champagne region will see some unfavourable years ahead, resulting in lower quality and/or quantity, while the chance of Kent seeing some great 2022 conditions again is higher.

There are some negatives of course. It is slow growth. Wine businesses historically haven't proved great public investments. And there is competition, plenty of it, and while Chapel Down is the biggest at the moment in the UK, that's not saying much and its position could be usurped.

I did get in sub-20p though, so potentially I have taken all the easy gains, buying near NTAV. But I did re-assess recently and think it could go to 45p-50p within 12 months, hence why I'm still holding. Key will be that trading update during or just after summer, when they see great YoY revenue growth from all that still wine sold, from this year's harvest. Will also mean a huge jump in profitability (as costs are very fixed, in this type of operation).

(I hold in the Boon Fund)

Richard Goodwin

13th Jan '23

The risk with £cdgp is that they are going to build a new bigger winery off site. It strikes me that this presents a large medium term risk. The new CEO is very ambitious.

They are also a capital intensive business and expansion will stuck in cash.

Helvellyn - looks like you've moved the Chapel Down (OFEX:CDGP) market with your post :) nicely up in the last 2 days! Now 38-39p price from <36p.

(I hold)

Helvellyn

Hi Boon,

Ha ha if only that were possible !

It has been a tremendous few weeks for most stocks so lets hope it holds.

Thanks for your comments BTW.

BnB

I do think you might be onto something with this one, guys. It's below my liquidity threshold but it's a perfect climate change hedge.

Caduceus

21st Jan '23

Currently has a huge 22% (2,222 BPS) buy spread on it atm (FOR INFO)

Rusty2

Not every year will be like last summer, why do some people think that?
2021 was probably more typical.

Vines can be damaged by late frosts.

This is too risky for me, too much depends on the weather, I tend to avoid such stocks.

Spread is far too wide as well. If there is a problem the spread will get wider.

23rd Jan '23

The actual working spread here is usually around 2-3% , however there is a liquidity problem and to build a decent postion took me some time and a lot of patience.

Spread is 39-40 today, can buy at 39.7p I wonder why Stockopedia has such a wide spread.

The problem with illiquid stocks is selling when there is bad news.

This morning, with the Trading Update out, there were bid quotes for 10k+ shares at 39.8p! I think the ask price was the quoted at 40p. But towards the afternoon, the liquidity dried up, and we're back to the 39p-40p spread again to get any decent volume.

I'm happy to hold, as the update was a good confirmation of my estimates already. I see a potential 2p to 2.5p EPS for FY23, which is a fair price to pay, given the future growth prospects are supply-constrained, not demand-constrained (yet).

However, obviously if the economy tanks then discretionary spending on things like sparkling wine goes down...

Would be good to see if the CEO picks up some more shares after this update. Also if Michael Spencer buys (but he seems to do it opportunistically between trading updates) to take him closer to 30%.

I have, today, reported the spread issue to the Stocko team.

Well done. The director trades are missing, might be worth mentioning. Did have a problem on all stocks, a few months ago, thought it had been fixed but maybe not entirely.

27th Jan '23

https://digitaleditions.telegr...

28th Jan '23

I met an agricultural and viticultural expert on a ski holiday yesterday. From the Champagne region no less. He is very bullish on Kent’s long term prospects for “champagne” production.

23rd Aug '23

Well it looks like this spring and summer the weather has been very kind to Chapel Down, from a harvest perspective, and together with, IMO, a very successful marketing campaign things seem to be progressing here. Anecdotally my local Waitrose. M & S and Majestic all tell me that their sales of and level of enquiry in the Chapel Down English sparkling wine range have increased markedly this summer, and at £25 -£29 for the entry level bottle against £40-£50 for equivalent Moet et Chandon French Champagne maybe this is not surprising if the taste experience is similar. I believe that Chapel Down have a great opportunity to take a growing share of the UK Champagne market over the next few years. There will obviously be execution risk as they will need to and have plans to expand production and weather will always be a concern in this business although this may prove to be a tailwind.

For anyone that may be interested I have linked their IMC FY22 results review and their H1 23 TU.

Investor Meeting Full Year Results - Investor Meet Company

http://newsfile.refinitiv.com/...

I note the spread is still incorrect on Stockopedia, it has 1818bps, when actually today it around 400bps. I also note the director transactions are still missing.

Hi Rusty,

I actually added to my holding yesterday and in the afternoon I bought 10,000 at 47.595 and could have sold 30,000 at 47.30 but the spread is not always this tight.

Yes spread often not as wide as quoted but 1818bps is miles out, this will exclude it from some screens. I often screen out wide spreads. This was reported to Stockopedia back in January.

Chapel Down Group

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Helvellyn

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