Gage Roads Brewing Co Ltd (GRB)

Fourth quarter 2018 update

Key Points

  • FY18 EBITDA higher than our forecast: GRB’s unaudited FY18 earnings were $4.5m, slightly beating our forecast of $4.2m and was 25% higher than FY17’s underlying EBITDA of $3.6m. Last year’s statutory EBITDA of $4.4m included a one-off compensation payment and ATO refund which increased earnings.

  • Total FY18 sales higher than our conservative estimates: Strong uplift in combined sales of GRB’s brand (ex. Optus Stadium & events) and contract brewing volumes came in at 11.9m L vs our conservative estimate of 10.7m L. Contract brewing volumes of 7.7m were significantly higher than our expectations of a wind down to 6.8m L, from the 7.2m L sold in FY17. Sales of GRB’s proprietary brands were 4.2m L (up 24% YOY) which was slightly lower than our expectations of 4.4m L. Total proprietary brand sales, inclusive of the Perth Stadium and other marketing events, totalled 5m L, increasing 47% YOY. The strong increase in proprietary volumes came as a result of a 181% upli ft in sales to independent liquor stores with Single Fin and Alby performing strongly. Draught sales were also a significant contributor, increasing by 218% over the previous year.

  • Strong operational cash flows: The strong increase in sales for the quarter saw $2.9m in operational cash flows recorded, following on from last quarter’s inflows of $2.1m. This has resulted in GRB’s balance sheet strengthening further with a total of $16.9m sitting in cash, excluding the additional $2m received from the SPP after the end of the quarter. $10m was recently raised through a capital raising with funds required to settle the $13.25m cash portion of the Matso’s acquisition which is expected to be finalised this quarter.

  • Increasing our volume expectations: Management noted that proprietary sales to national retail chains were down 15% over the year, compared to Q4FY17 following a one-off stock build resulting in lower replenishment sales in Q1FY18. With no stock build sitting at the end of this year, 1Q19 sales are expected to see a positive improvement over last year. With the strong momentum behind the brand continuing, we increase our estimates for proprietary sales volume growth to 25% for FY19 vs our prior conservative estimates of only a 20% uplift. We also reduce the rate of decline in contract brewing volumes.

Valuation and Recommendation

We increase our valuation and price target to $0.135 per share from $0.125 per share based on DCF methodology, as a result of the slightly higher craft sales growth expectations and slower wind down in contract brewing volumes. We also roll forward our DCF valuation. FY19 should see a strong uplift in earnings with Matso’s expected to contribute strongly to GRB’s own suite of products with the acquisition expected to be finalised shortly. We maintain a Speculative Buy rating.

Disclosure Disclaimer


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The analyst does not hold securities in Gage Roads Brewing Co. Limited.

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Recommendation Definitions

SPECULATIVE BUY – Potential 10% or more outperformance, high risk
BUY – Potential 10% or more outperformance
HOLD – Potential 10% underperformance to 10% over performance
SELL – Potential 10% or more underperformance
Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months.

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries Index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes.

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Michael Ron

Research Analyst

Michael has been trading equities since 2003 and since joining DJ Carmichael in 2004 has worked in numerous roles in operations, trading, compliance and research. Michael’s expertise is in trading and equity strategy using a combination of both technical and fundamental analysis.

Michael holds a Graduate Diploma in Applied Finance, Diploma of Financial Markets, Diploma of Financial Planning, Advanced Diploma of Business Administration and is currently studying towards a Master of Applied Finance.