Shares of Edinburgh-based Artisanal Spirits Company plc (ASC), owner of The Scotch Malt Whisky Society (SMWS), rose about 7% after it published a trading update for the six months ended June 30, 2024.

ASC said an independent valuation of the group’s Scotch Whisky cask spirit stock held at the end of June 2024 came in at just over £100 million.

ASC is also the creator of limited-edition whiskies and owner of Single Cask Nation & J.G. Thomson.

“The group is pleased to confirm that the positive profit improvement momentum which characterised H2-23 has continued through H1 FY24, with a c£1m year on year increase in EBITDA vs H1 FY23,” said ASC.

“The trading conditions and consumer purchasing behaviour witnessed in FY23 have continued in H1 24 and ASC continues to focus on maintaining a high quality, committed and engaged global membership which will underpin sustainable, long-term revenue and profit growth.

“Our increasing global footprint with launches in new markets such as Taiwan, the acquisition of Single Cask Nation (SCN) in January of this year and the development of our members’ cask sales programme, enables ASC to mitigate the group’s exposure to any given market, such as China where trading continues to be challenging.

“With a larger, more diversified business, China is increasingly proportionately smaller for the group.

“Group revenue was broadly flat in H1-24, SMWS membership was broadly stable and year on year costs were reduced.

“As we focus on the FY24 consensus EBITDA delivery of £1m, the business priorities remain driving quality membership growth through international development and initiatives such as ‘Membership and a Bottle’, a product range review which will simplify and optimise our offer to members, our members’ cask sales programme now available internationally, further growth from SCN and continued cost efficiency management.”

On its whisky stock and balance sheet, ASC said: “Post IPO, we have continued to optimise our whisky cask purchasing by evolving to a greater acquisition of new make spirit (transitioning from historical acquisitions of more aged stock), building an exceptional collection of around 18,000 casks, from approximately 150 leading distilleries and representing over 200 different makes.

“As a result, we now have whisky stocks in place to satisfy demand for the foreseeable future, and therefore the cash profile of the group will adjust significantly going forward as we transition from material net cash investments in stock over the last decade to a replacement approach.

“Given this inflection point for the business, we have undertaken an independent valuation of the Group’s Scotch Whisky cask spirit stock held at the end of June 2024.

“Encouragingly, the work by independent sector experts, Des McCagherty and Dr Alan Rutherford (with a combined eight decades of industry experience), has estimated the current value of the Scotch Whisky cask inventory to be £98.4m, representing around £76m uplift to the current carrying value (equivalent to 4.4x NBV). 

“Combined with around £3.5m book value of American, other world whiskies and other spirits, this represents a total cask spirit value of just over £100m, with net debt (£22.8m at Dec-23) representing only around a quarter of this total.

“The group will continue to invest in the sustainable growth of the business.  Management are of the view that the group’s current level of debt funding is entirely appropriate within ASC’s wider capital structure, further supported by the significant cask spirit valuation of just over £100m.”

ASC said it considers that current consensus market expectations for the year ending December 31, 2024, are for revenue of £25 million (2023:  £23.5m) and EBITDA of £1 million (2023: Adjusted EBITDA £0.1m)

 Andrew Dane, CEO of Artisanal Spirits Company, said: “While trading conditions remain challenging in a few markets, we are pleased with the ongoing improvement in year-on-year profitability in H1 and remain focussed on delivering the full year consensus EBITDA expectations of £1m and ensuring sustainable profitability over time.

“ASC’s proven strategy of investing in whisky stock has built an impressive inventory which will satisfy our requirements well into the next decade, as well as delivering a significant uplift in value creation, and whilst we have an independent expert valuation estimate of just over £100m today for the casks, the business is focussed on generating maximum value creation through maturing and bottling these premium whiskies which ultimately delivers a multiple on the cask value, with estimated future retail value in bottles of almost £0.5 billion.

“Furthermore, with our cask levels now reaching an optimal level, we have reached a turning point in the cash investment requirement in the business.

“Historic levels of investment in whisky stocks are no longer required as we transition to purchasing on a replacement basis to satisfy future growth demands, representing a very positive inflection point for the cash profile of the group.”