By: Mark Lakowske, student at Marquette
University
Disclosure: The AIM Equity Fund currently holds this position.
This article was written by myself, and it expresses my own opinions. I am not
receiving compensation for it and I have no business relationship with any
company whose stock is mentioned in this article.
Summary
MGPI produces and sells distillery and ingredients products
to the packaged goods industry in the United States.
Demand for MGP's products has
been on the rise for the past few years. The firm produces and sells distillery and
ingredients products to the packaged goods industry in the United States,
Japan, and Canada. Its Distillery Products segment primarily offers food grade
alcohol, fuel grade alcohol, distillers feed, and corn oil.
• The management team has
realized issues that have impacted past performance and are positioned to
improve and capture financial benefits over the next few years.
Cash flows, net income, and
margins have all improved dramatically since the end of 2014. In turn, the past
few quarterly earnings results have been outstanding and better than
anticipated by analysts.
The stock has been on a tear
since the beginning of 2015—increasing 44%
during this volatile year!
MGP Ingredients, Inc. (MGPI) still has much growth potential for the future. When Gus Griffin
took over as President and CEO, he established a five year plan to focus on
maximizing the value of
production, capture a large share of the value chain in both business segments,
invest for growth, continue risk management, and build the MGP brand. This well
thought out strategy got investors excited and institutions and other funds
have been pouring cash into the company.
The past three quarters have
seen tremendous financial growth for the company. The corporate restructuring
has allowed the company to capture profits from the growing whiskey demand
across the United States. Since Gus Griffin took the reins in July 2014,
quarterly sales have grown at an average rate of 3.78% YoY. More
impressively, company margins have skyrocketed this year—increasing from the
mid-single digits in 2014 to the upper teens and low twenties in 2015.
The overall demand for
liquors has been roaring in the past few years. Whiskey demand spiked 40% in
over the past decade. MGP is adjusting for high demand by expanding its
operation. The company just announced that they are dumping $16.4 million into
warehouse expansion that will enable them to essentially double their barrel
capacity. Griffin is confident that “American whiskey is in the early stages of
a long term growth trend” and “Thanks to our strong reputation for quality and
innovation, MGP is uniquely positioned to benefit from this trend.”
What has the stock done
lately?
Since management released
plans for their five year growth plan at the end of 2014, the stock has ripped
up 44%. Since the beginning of 2015 Q2 when the company began showing signs of
financial stability and growth, the stock has shot up over 80%. From a
technical standpoint, the stock broke away from their 50 and 200 day moving
averages in the beginning of October at their inflection point.
Past Year Performance: MGP Ingredients sales are up 3.7% from Q3 2014
and 6% from Q2 2014. Return on equity has improved dramatically from 2014 where
ROE was negative in March to returning 25.68 in Q3 2015. The company still
maintains a healthy leverage ratio from 2014—debt only making up 19% of the
capital structure.
Source: FactSet
My Takeaway
The new management team, with a strong focus on
the future, is the main driver for future growth in the company. Focusing on
streamlining the operation as a whole has allowed the company to reap benefits
from growing distilled spirits demand especially in the whiskey department. My
positive company outlook is reassured by the largest shareholders. Over the
past six months, the top fifteen institutional holders have collectively
purchased 2 million more shares of MGPI. Cheers to MGP Ingredients!
