I think it’s safe to say that Chapel Down‘s (LSE:CDGP) a pretty unique penny stock. The Kent-based company is England’s largest winemaker, with 1,018 acres of vineyards, of which 777 are fully productive. That’s around 9% of the UK’s total.
Earlier this week, the stock jumped 10% after the company released a promising harvest update. Yet at 38p, the share price is still down 50% since last summer, giving Chapel Down a modest £66m market-cap.
Bumper crop
The company, which is known for its sparkling wines, has just finished the September/October harvest. And the good news is that this year’s yield’s expected to be 2,882 tonnes compared to 1,852 tonnes in 2024. The average yield of 3.7 tonnes per acre was 15% higher than the historic five-year average yield.
Obviously, the warm summer we’ve just had was a blessing for English vineyards. And Chapel Down said these optimal conditions resulted in grapes with “a good balance of ripe fruit flavours for complexity and texture with the natural acidity that will add a fresh, crisp backbone to our wines”.
This harvest was the second highest yield ever for Chapel Down and takes us one step closer to achieving our ambition of winning an equivalent 1% share of the global Champagne market by 2035.
CEO James Pennefather.
Growing sales
Based on current trading, the board’s confident of meeting market expectations for 2025. According to my data provider, this is for revenue of £19m, which would be roughly 16% year-on-year growth.
Back in June, Chapel Down saw an 11% rise in net sales to £7.9m, boosted by a 30% rise in off-trade (retail) sales. International sales grew 17% as it benefited from new distribution partnerships with Jackson Family Wines in the US and another in Norway.
Historically, France, Italy, and Spain have dominated global wine production. But areas in southern Europe are being hit by more frequent droughts and heatwaves due to climate change. By contrast, cooler English vineyards are reaping the benefits, as we saw with this year’s crop.
However, with UK bars and restaurants struggling, future growth will probably have to come from overseas. So international sales growth is something investors should keep an eye on.
Capital intensive
According to Grand View Research, the global Champagne market is expected to grow to around $9.8bn by 2030. Capturing 1% of this by 2035 would translate into about $100m (roughly £75m). So there’s plenty of growth for Chapel Down to go after.
For a stock to really explode in value though, we would need to see substantial earnings growth. And this is what’s lacking here, with the forecasts showing either a small loss or small profit for this year.
Winemaking is capital intensive because vineyards take a few years to mature. So more cash might need to be raised, potentially diluting existing shareholders.
In June, the company’s net debt increased to £11.3m, as it invested in new vineyards and built up inventory from last year’s harvest. While the firm had £20m headroom, using debt to fund growth obviously adds risk.
Millionaire-maker potential?
This penny stock might make some risk-tolerant investor a fortune, were they to invest a large enough sum. But as things stand, I think this one is too speculative for my own portfolio.
