Welcome to the latest edition of Bull Case Bear Case. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Prepare to tackle the week with confidence!
Vint
White Burgundy Collection
4/20 @ 12:00 PM ET
Valuation: $138,000
Bull Case
Diversity in premier wine country. This Vint offering contains 109 bottles of wine across 12 different estates. There is only one wine that makes up more than 30% of the collection with the majority of the estates representing less than 10% each. Additionally, the wines included in the collection are from multiple vintages ranging from 1997-2018. That 21-year difference provides a level of diversity that is difficult for any collector to achieve on their own due to the constraints around sourcing wines from the late 1990s. This is also Vint's first offering that focuses on white wine from France that is not from Champagne. Wines that are considered white Burgundies are chardonnay-based and are often grown in the eastern region of Burgundy. The collection is also balanced by a red style as well, as the Hospices de Beaune (Comte Liger Belair), Echezeaux Grand Cru, Cuvee Jean-Luc Bissey which makes up 12 bottles or nearly 10% of the collection is a traditional Burgundy red produced from Pinot Noir.
High flying performance. There is no wine region that has displayed recent appreciation as strong as Burgundy. Over the last five years the return for the Burgundy 150 on Liv-ex is 112%, which outpaces the second best-performing index, the Champagne 50, by nearly 20%. Through the end of March, the one-year return for Burgundy is 43.77% and the year-to-date return is 14.62%. That YTD ROI is the best of any index tracked by Liv-ex and in March alone, the Burgundy 150 returned 4% which nearly doubled the return of their general Fine Wine 1000. While red wines dominate the Burgundy market today, the white wine side of the region is gaining serious momentum as investors seek-out undervalued opportunities. Since 2010, the total traded value of white Burgundy is up 2000% and the majority of that increase has occurred after 2016. In 2016, the Power 100 list of top producers featured 19 from Burgundy and in 2017, that number had climbed to 24. With nearly a quarter of the Power 100 represented by one region, the stage was set for a breakout in valuations and Burgundian producers delivered. One of the flag bearers for the sector, Domaine de la Romanee-Conti Montrachet, has displayed consistent double digit returns since 2016 at auction with an additional premium placed on lots that feature multiple bottles.
Reasonable valuation versus recent trades and sales. Pricing a collection of this size is never easy but after reviewing recent auction prices in addition to general trade data from sources such as Liv-ex, the collection is priced in line with what these wines would collectively be appraised for. Vint sourced and purchased this offering for $122,251 which is actually below fair market value today although that fair market value has changed over the last month due to further appreciation of Burgundy in March so the purchase price might have been in line with comps at the actual time of acquisition. The collection is being offered at a $138,000 market cap which is a 12.88% premium to the price paid for the collection. The low double-digit mark-up falls in line with other recent collections offered by Vint and still allows the collection to IPO at a price below its FMV. While the collection is supported by a diverse base of estates, there are a few wines in particular that pull a substantial amount of weight within the overall valuation process. Take for example the 2018 Domaine de la Romanee-Conti Montrachet Grand Cru. The collection carries a single bottle of the DRC but the estimated percentage of the collection represented by the wine is 11.08%. This gives the DRC a value of $15,290. At this time, the going rate for a single bottle of 2018 DRC Montracet is around $12,000 but that is before sales tax, duty, and shipping expenses. Recent auction sales have priced single lot DRC between $10,800-$12,200 before buyer's premium and fees which ultimately place the value near t$15,290. Based on an unofficial evaluation, the 109 bottle collection as of 3/31 would appraise between $135,000-$145,000 with a reasonable FMV falling somewhere within that range. The appraisal also takes into account an estimated storage cost but leaves out the cost of duty, premium, or tax if purchased from the third-party.
Bear Case
The red Burgundy bias. It is real, and it has haunted white wine collectors and investors for years. With the exception of champagne, wines produced from white grapes has historically struggled to gain traction both on private markets and at auction. The overwhelming majority of wines tracked by platforms such as Lix-ex are reds and in a recent review of a wine auction hosted by Heritage Auction, more than 90% of the wines sold were red. The 2000% increase in volume is promising but it important to note that that gain is effectively from a starting point of zero. The continued appreciation of Burgundy wines does not necessarily equal appreciation for white Burgundy wines and this is driven by the current bias towards red wines from top producers such as DRC.
Uncertain liquidity options. This is likely a concern for those who have already invested in collections on Vint and will continue to be a question mark until a formal method of liquidation is established. Vint has mentioned that they are working on a liquidity solution and in a perfect world both buyouts and an active secondary market will provide investors looking for the opportunity to move cash in and out of collections. Wine traditionally has a longer hold period than other assets and there is a benefit to holding onto wine investments for a few years, both for tax purposes and appreciation. It is fair to acknowledge that some investors will be looking to flip their investments rather quickly though and at least today, there is no option in place to accommodate that investing style.
The threat of a Burgundy bubble. As with any financial market, the fear of a potential bubble burst is always hanging overhead. Burgundy wines are displaying historic levels of appreciation and their performance on both private and public markets is currently soaring ahead of other regions and wines. The recent appreciation was driven after the US lifted tariffs which were impacting French-produced vino and the strong returns have yet to cool-off even after over a year of tariff-free markets. Their is a looming concern surrounding the global economy, with a supply chain slowdown brewing in Asia combined with a potential food shortage due to the Russia-Ukraine conflict. Additionally, the markets in the United States are showing unease with rising inflation paired with a recent increase in interest rates that is expected to apply pressure to the housing market. In 2008-2010, Burgundy felt a significant impact from the global financial crisis as auction results fell sharply with year-over-year total sales decreasing by nearly 40% at top houses such as Christie's. Wine is often credited as being an inflation hedge and long-term there is evidence to support that claim. In the short-term though the pain could be felt as investors are hesitant to enter a relatively illiquid market.
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