Primary Bid launches Artisanal Spirits offer

Edinburgh-based Artisanal Spirits Company has launched an offer via Primary Bid ahead of its planned flotation on AIM. Artisanal owns the Scotch Malt Whisky Society, which has 28,300 members around the world.

The offer will be priced between 112p a share and 121p a share. Existing members of the Scotch Malt Whisky Society are likely to take priority in this offer. The offer closes on 21 May and the expected admission date is 4 June.

Artisanal hopes to raise around £16m of new money, while existing shareholders are selling a similar amount of shares.

There is still potential to increase membership numbers around the world given the tiny market share the company has. Currently the focus is single malt whiskies, although other spirits, such as cognac, gin and rum, are also sold. The product range will be expanded in the next few months to include blended whiskies under the JG Thomson brand. Reopening the venues should also help sales.

The Scotch Malt Whisky Society business was bought out of LVMH in 2015. It purchases casks from distillers, matures the whisky and then chooses the correct time to bottle the whisky and sell it.

The whisky is sold at £35/70cl or more. There are 250 70cl bottles in a cask and the whisky from each cask is given a name and cask identifier number. Artisanal has plenty of maturing whisky stock. It is estimated to be 26 times the volume sold in 2020.  

Figures

Edison has published a research note on Artisanal. In 2020, Artisanal’s revenues increased by 3% to £15m and the operating loss, before an exceptional charge of £392,000 relating to investment in IT and the initial costs of the flotation, fell from £572,000 to £311,000. The company received £169,000 from the coronavirus job retention scheme.

The cash outflow from operating activities was £1.38m. There were capitalised website development costs of £366,000. Net debt was £13.7m at the end of 2020.

Artisanal had to close its venues and cancel events during last year due to Covid-19 lockdowns – the new Glasgow site opened at the beginning of March and was closed in a matter of days. Management estimates that the venue closures knocked £2.1m from revenues, so the growth in overall revenues was a decent achievement. Online sales increased by £2.4m, making up for the shortfall from venues.  Membership income increased from £1.27m to £1.52m.

There was an extra cost due to the 25% US tariff on single malt imports and that was absorbed by the company, which decided not to put up prices. The tariffs were suspended in March 2021, although it was described as temporary, so that should help to improve margins this year. The tariff reduced profit by around £700,000 last year.

Prospects

Customer loyalty is an attraction. Once Artisanal gains a customer then the long-term income generation is much higher than the cost of acquiring the customer.

Competition is fierce in the spirits market, though. The overall market for upmarket whisky is $5.5bn. Artisanal is a very small participant in the sector, which brings plenty of opportunities but also means that its marketing fire power is limited. Distil, which has been quoted on AIM in one form or another for two decades, has shown that it is difficult to build up spirits brands.

Cash continues to flow out of the business and the cash raised in the AIM float is needed to further build up stocks and continue to the marketing activities to add to the membership list. UK membership is relatively flat with the fastest growth coming in Europe and Asia.

Investment in ecommerce is also important. There are plans to launch additional brands: JG Thomson (blended whiskies) and The American Whiskey Society, which will help to broaden the appeal.

According to Edison the new shareholders from the flotation should own around 39% of Artisanal, which suggests that the market capitalisation could be around £80m.

That valuation seems to be optimistic, but if the membership can be increased then long-term revenues will grow substantially. There are also the valuable whisky stocks. This appears to be one for whisky fans.

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Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.