Laurent-Perrier (LPRRF, Financial) (XPAR:LPE, Financial) is a France-based producer of Champagne and wine. The company has been at it for over 200 years and is still controlled by the founders. The stock trades at a decent valuation considering the Champagne region is very limited in size and production.
The stock trades for 89.40 euros ($98.11), there are 5.92 million shares and the market cap is 529 million euros. Earnings per share are 3.89 euros and the price-earnings ratio is 23. The dividend is 1.15 euros and the dividend yield is 1.3%.
In the latest year, which ended in May, sales were 249.6 million euros and the operating margins were 17.6%. What’s interesting is there is a 537 million euros inventory of, you guessed it, Champagne and wines resting in barrels.
Sales were 222.9 million euros back in 2014. In 2007, sales were 208 million euros. Definitely not a growth stock. That’s a knock against Laurent-Perrier.
The balance sheet isn’t bad. There is 73 million euros in cash and 47 million euros in receivables. The liability side shows 80 million euros in payables and 350 million euros in debt. Free cash flow was 14.4 million euros in the last fiscal year and the free cash flow yield was 2.7%. I’m not excited about that free cash flow yield.
Laurent-Perrier has been making wine and Champagne for over 200 years. The Ultra Brut is a Champagne that became famous because no sugar was added. I see a bottle on Wine.com for $70. Other brands include: La Cuvée, ($80 on Wine.com), Brut Millesime ($80), Grand Siecle, Blanc de Blancs, Curee Rose, Alexandra Rose and Harmony. If you want to have a better understanding of the Champagne industry, read the annual report. I’ve never seen an annual report that does a better job explaining its industry.
The family owns 61% of the shares. I was reminded of the stock by perusing First Eagle’s portfolio. There is a dual shareholder structure and the de Nonancourt family holds 75.51% of voting rights. We don’t like dual voting structures. We like one share, one vote.
Property, plant and equipment shows up as 305 million euros. It looks like there were some revaluations, so I assume that number is close to what the market value is. Tangible book value is 397 million euros. That’s not a bad value based on market cap. If you take out the assets and value the company as something that produces 14.4 million euros in free cash flow, you’d have a value way over 529 million euros market cap. On a sum-of-the-parts valuation, I think the stock trades at a good value. Of course, you have to factor in a control discount as the family has a controlling interest and a dual shareholder interest.
Of course, they are not expanding the Champagne region. As you probably know, if it says Champagne on the side of the bottle, it comes from that region. Perrier sources about 90% of its grapes from other growers in the area. Definitely a barrier to entry.
First Eagle had some good comments on Perrier:
“Another example of an old family-owned business is Laurent-Perrier (XPAR:LPE, Financial), a Champagne maison founded in 1812 and controlled by the De Nonancourt family, which has been running the company for three generations and currently owns 61% of it. With its supply structurally limited by French law that defines the geographic area in which it can be produced, Champagne is a scarce asset, and the vast majority of both the wine and the grapes needed to produce it are in the hands of large maisons like Laurent-Perrier. While its Champagne brands--most notably Laurent-Perrier but also Salon, De Castellane and Delamotte--are very valuable, Laurent-Perrier also controls certain impossible-to-replicate assets in the form of its vineyards and other prime real estate and its large inventory of aging bottles.”
In my opinion, Laurent trades at a decent valuation. If someone were to buy it, and if the de Nonancourt family wanted to sell, it would fetch way over what it’s trading at. I agree with First Eagle in that its product has high barriers to entry with the Champagne name and brand.
Disclosure: We own shares of First Eagle.
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