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  "documentTitle": "MGP Ingredients, Inc. (MGPI)",
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  "authorName": "Ben Axler",
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  "sourceTypeLabel": "Short seller",
  "presentationDate": "2017-01-12 00:00:00",
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  "notes": "The slide uses a 'Warning' header to frame the first section as a red flag regarding accounting integrity.",
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      "text": "We see approximately 60% - 70% downside risk in MGPI's share price to a range of $16 - $21 per share",
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      "text": "MGPI has just two small sell-side analysts that tout its stock has 17% upside to $55/sh and seem confident it can compound its sales and earnings by at least 5% over the two years, while expanding EBITDA margins by 170bps. Based on our price target of 60% - 70% downside, there's a terrible risk / reward of owning shares at the moment",
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      "text": "To our dismay, starting in Q2'16 we find that MGPI has been quietly restating purchase amounts from the JV in fiscal year 2015. These restatements, coincide with the period that both MGPI's CFO abruptly resigned in May 2015 (he had been CFO since 2009) as well as its Randy Schrick who had been with the Company 42yrs in June 2015 (most recently served as VP of Production and Engineering). MGPI's reported purchases from ICP are explicitly contradicted by Seacor. Seacor has generally reported less sales to MGPI than MGPI claims. We can understand why MGPI might report slightly higher purchases than Seacor (e.g. shipping costs), but don't understand why in any case they would be reported lower as in 2014",
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      "text": "Insiders always know best so follow the money. It's no surprise to us that the Seaberg family which owns ~28% of the Company's common stock and 84% of the preferred shares (giving them Board control) recently entered into a stock sale program in late December to start liquidating a portion of its holdings",
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      "text": "We also observe that sales figures related to customer freight costs are not adding up YTD, and being retroactively restated higher in 2015. Our concern about the validity of MGPI's numbers could cause issues with its credit facility covenants",
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      "text": "In our view, it is easy to refute the bull case. Investors are valuing its shares as if it already were the best branded alcohol producer in the world (greater than Diageo, Constellation and Brown-Forman) even though it has no firmly established brands. MGPI trades at a rich 2.5x, 14.5x and 29.0x 2017 street estimates of sales, EBITDA, and EPS, respectively. Optically, Its leverage appears conservative at just 0.8x Debt to EBITDA. But, in reality once its EBITDA and EPS start to decline, investors will focus heavily on the fact it has zero cash and is utilizing 46% of its credit revolver",
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      "text": "Spruce Point always takes extra precaution to identify and evaluate related-party transactions when they occur at public companies. In the case of MGPI, we think investors should question its relationship with ICP, an entity which it owns 30% and produces ethanol related products with Seacor, another publicly traded company",
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      "text": "MGPI's valuation multiple is stretched and trading near an all-time high. We believe that once it becomes clear that the whiskey market is saturated, MGPI is stuck with excess inventory, and its tiny brands fail to gain traction, investors will once again realize they own a mediocre commodity alcohol and ingredient Company, which would ordinarily be valued at 1x sales and 8x – 9x EBITDA. As a result, we see approximately 60% - 70% downside risk in MGPI's share price to a range of $16 – $21 per share",
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      "text": "downside risk: 60% - 70%",
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      "text": "Warning: Related-Party Transactions and Revenues From Customer Freight Shipping Are Not Adding Up",
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