Bull Case

The story behind the CEO’s departure is obviously not great press, but offered a catalyst to seize what appears like a value play with a lot of upside potential. 

Lark had already communicated with the market their search for a new CEO in December, and the noisy exit combined with the shake-up in markets recently resulted in a -25% month in February. The stock is now down 40% from its high at the end of last year. 

This is a 30year old company with some impressive figures on its board and executive team who have a history of delivering results. More importantly, using the FY21 selling price post the acquisition of Pontville, there is $432M of whisky inventory value under maturation. 

If we extrapolate the H1 results for H2 (which granted is optimistic: their guidance is for slightly lower H2), the business is on a PE for 20. That seems mostly reasonable. And we’re all the whisky under maturation as a cherry on top. 

Risks

The biggest risk I see here is execution risk. If the business deteriorates and fails to deliver on their plan of increasing sales through their new channels, they may cap out. Then the inventory will remain inventory and fail to materialise in through cash flow in the future. The mitigation I see to this is the management teams experience.