A CHEAP ROUND IN CAPEVIN?

As the Heineken deal goes through, all eyes are on Distell offshoot Capevin which may be worth well more than the R15-a-share buyout offer

Punters are likely to be keeping a close eye on Distell’s shares, which rather curiously are trading at a premium to Heineken’s buyout offer.

At the time of writing Distell shares were between R181 and R182.79, against Heineken’s R180 offer.

This doesn’t suggest Heineken, at this late hour, is expected to increase its offer. It has, after all, taken the best part of two years to get final approval for the deal

including an impasse that saw cash-pumping Distell withhold dividends.

What the price movement does suggest is that some investors believe the Heineken offer undervalues Distell. These punters are presumably seeing the value of holding unlisted shares in either Heineken South Africa or the smaller offshoot Capevin.

The deal breakdown shows Heineken offering R165 a share for the bulk of Distell’s assets bundled under “Newco including mainstream brands Savanna, Hunter’s, Nederburg, Klipdrift, JC le Roux, 4th Street, Durbanville Hills, Fleur du Cap and Amarula. Then there’s a R15-a-share offer for Capevin, which houses the international whisky operations and brands, as well as the highly profitable gin distribution business.

Distell shareholders, in both instances, have the option of remaining aboard the respective unlisted entities rather than cashing out completely.

As the Heineken deal closes, investors might have started to look specifically at the prospects for Capevin which could be worth far more than R15 a share. Capevin holds distribution rights for Gordon’s Gin the best-selling gin in South Africa, operated under licence from liquor giant Diageo along with strongselling whisky brand Scottish Leader, blended whisky brand Black Bottle, and single malts Bunnahabhain, Deanston, Tobermory and Ledaig.

Suspicions of a lowball offer for Capevin already stirred after the deal circular showed that Gordon’s

Gin generated R448m in net cash flows in 2021, and the whisky assets more than R200m in operating cash flows.

Gordon’s Gin recorded revenue of R1.74bn in financial 2021, which yielded operating profit of R310m. The whisky business centred on Burn Stewart Distillers, which Distell acquired in 2013 for £160m (R2.2bn at the time) generated sales of about R1.65bn in 2021, with operating profit coming in at about R144m.

At the results presentation for the year to June 2022, Distell CEO Richard Rushton said whisky demand “way outstrips supply”.

He added: “As this aged whisky pool becomes available to us, we should be confident of replicating growth rates we are picking up.”

An updated “carve-out” for the whisky business will add cheer to proceedings. The scotch assets produced revenue of £96m (R2.14bn) and profit from operations of £16m (R357m). Bottom-line profits came in just shy of £12m, or more than R265m.

The regional sales breakdown showed a continued strong niche in Asia (Scottish Leader is the No 2 whisky brand in Taiwan) with marked growth in the UK and Europe.

Investors delving into the balance sheet would also be reassured that inventory sits at £115m, with £103m deemed “maturing spirits”.

The carve out for Gordon’s is equally impressive, with revenue of R2.3bn (2021: R1.73bn) turned into operating profits of R415m (R310m). Bottom-line profits in the business were up a third to R299m.

The combined whisky and gin operations produced R564m in bottom-line profits in financial 2022, meaning the cash offer for Capevin is being pitched on a rather modest p:e of 5.6.

Distell’s recently released interim results to endDecember will fortify notions that Capevin stores heaps of value. The group reported international revenue up 25.6%, as the Scotch whisky assets put in another solid showing.

Of course, holding shares in an unlisted venture doesn’t always sit comfortably with investors.

Some heart can be taken that Remgro, the biggest investment company on the JSE, will remain the anchor shareholder so the financial reporting will be clearly flagged.

Capevin, though, won’t be hugely significant in Remgro’s life, and nowhere near as big as its holding in the new Heineken venture.

Whether all or part of Capevin’s assets will be sold in the short term remains to be seen. There should be considerable interest in the whisky assets from international groups, while the future of the gin business remains tricky to assess, given the complex relationship with Diageo.