Bull Case Bear Case: The Macallan 50 Year Old Collection
May 25, 2022
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! This week, we preview the The Macallan 50 Year Old Collection.
The Macallan 50 Year Old Collection
5/25 @ 12:00 PM ET
Blue-chip whisky in rare form. To put it in simple terms that those within the hobby would understand, The Macallan is the Mickey Mantle or Babe Ruth of whisky. The collection offered by Vint features one of the 200 50-year bottles released by Macallan and only 18% of that production was allocated to the United States. Just as sports cards from a limited print run are numbered, all 200 bottles from this batch carry a unique numerical identifier and due to their appeal as a collector item, similar to a Warhol or Basquiat, bottles from pre-1970s vintages rarely appear at auction. In the early 1980s, the whisky market was crowded, with hundreds of producers competing for space within an industry that had not yet managed to capitalize on the possible investment appeal of their production. Then, in the mid 1980s, supply overwhelmed the market and distilleries experienced a significant drop in prices that would result in the global market falling by more than 40% in a five year period. When the sector finally stabilized near the end of the decade, single malt whiskies were the clear surviver and would carry momentum through the final years of the 20th century and into the 2000s. Rising from the ashes and leading the industry was Macallan, which rode the wave of record whisky sales through Europe and the United States and continued to climb as the Asian market expanded in the 2010s. Today, Macallan is the number one producer by volume in the world, manages to sell every bottle they produce (yes, they sold out 100% of their production in 2019) and has carved out a role within the investment world of whisky. While some bottles of Macallan sell for less than $50, the distillery produces an extremely limited amount of investment-grade scotch, just 200 bottles in the case of this 50-year, which creates an immediate supply shortage,
Macallan performance and global demand. The year-to-date return for the Macallan Index tracked by Rare Whisky 101 is 13.7% while the one-year return is 35.2%. Overall, the Macallan index is up 369.5% since 2012 and has outpaced the majority of indices tracked by Rare Whisky. The secondary market for whisky, especially single malts, has continued to expand and in 2021, the total bottles traded across public markets surpassed 170,000 which represented a 20% increase from the record volumes reached in 2019. The demand for whisky in Asia has climbed more than 30% since 2018 and a significant portion of that demand is driven by whisky from Scotland.
Historic yet innovative. Whisky producers are not immune to economic risks (more on the later) but Macallan has also developed a reputation as an innovator within the space with a willingness to expand their operation in a way that incorporates technology and clean energy. This offering from Vint opens in the midst of a growth period for the acclaimed distillery as Macallan continues to find ways to stay ahead of the market - even at nearly 200 years old. In 2018, Macallan officially opened a new distillery in Scotland's Speyside region that took six years of planning and $186 million to complete. The 370-acre estate showcases a unique architectural design that is built into the hillside and has 95% of its energy powered via renewable resources.
Souring towards spirits. The recent surge for whisky inemerging markets such as mainland China and Australia is shading concerns about future spirits market weakness as demand in established countries has actually struggled to gain traction over the last decade. In the United States, whisky demand has increased but the overall spirits market has dipped by 20% since 2018. The growth of non-alcoholic beverages and sparkling drinks has left a void within the side of the market built around hard alcohols and while this trend is not impacting investment-grade whisky yet, it is not promising to see the shift in demand from retail consumers at a time where alcohol sales are peaking.
How will investors make their money? Yes, if you read these you probably notice this bear case is a recurring theme. That being said, it is a valid question and a bear case until we have more light into the sell-off process for these assets. there are still questions surrounding the liquidity process on Vint, which have important implications on potential returns for investors. There is no secondary market currently on the platform so at this time, any liquidity would need to come from an outside buyer. Once Vint has established a consistent process for liquidation, this bearish point might lose relevancy but until then, there is a risk of the unknown. Even if/when Vint builds a secondary market for trading, will that market act rationally? Rally currently has a secondary market where wine is traded and multiple offerings are trading well below their fair market values. Vint might have a more wine and whisky educated investor audience and prices could trade in-line with public markets, but that theory would be nothing more than speculation until proven by an active secondary market.
The global risk surrounding the whisky market. After reviewing recent returns for the top whisky producers, there is no question that we are in the midst of a bull market. Vint's purchase of this collection symbolizes that, as they bought the bottle for $102,000, which is a fair price based on current market value of Macallan 50-year, but is a 191% increase from the price of these bottles when they were released in 2018. Each of the bottles were sold for $35,000 at their release and the IPO market cap for this bottle is 229% higher than the initial valuation from less than five years ago, The annualized return is 29.5% and a total gain of $80,000 for a single bottle is quite the impressive display of appreciation. This growth raises the question of whether or not this bull market will run out of steam. With concerns around the economy, specifically tied to the consumer, increasing around the globe, if the market comes for whisky next there is a chance we could see a steep drop from a market that has climbed exponentially over the last few years. At a price point of $115,000, after opening at $35,000 there are also concerns of just how much more appreciation is left for this bottle before an anticipated sell date in the mid 2020s.
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