Good Drinks Australia Ltd

GDA Details

Cancellation of Employee Share Plan: Good Drink Australia Ltd (ASX: GDA) engages in packaging, marketing, and selling beer, cider, other beverages and offers the product under Single Fin, Little Dove, Sidetrack, Sleeping Giant, and Hello Sunshine brands. The market capitalisation of the company as of 8 June 2021 stood at $122.70 million. As per a recent announcement, the company will undertake a share buyback and cancellation of 293,295 employee shares.

Q3YTD FY21 Financial Performance: During the quarter, the company has recorded a total sales volume of 12.8 million litres, up by 41% compared to YTD FY20. Good Drinks volume grew by ~42% to 8.8 million litres as compared to the previous corresponding period. It continues to be one of the leading suppliers of craft beer in Western Australia.

YTD FY21 Financial Performance (Source: Company Reports)

Outlook: The company targets own-brand growth of 20-25% per annum, a gross profit target at 65-70%, and 25-30% EBITDA growth per annum. Additionally, it will also target larger east coast markets with expanded Good Drinks capabilities and look for potential acquisitions and partnership with international brands. GDA is focused on maintaining low cost with high quality that could drive sustained brand growth. The company is expecting annual production for FY21 to be circa 18 million litres.

Key Risk: Due to the COVID-19 pandemic, the company has been impacted on its production, demand and retail sales, and the uncertainty still remains in the economic environment.

Stock Recommendation: During the YTD FY21 period, the company's brand-in-hand sales channel has reported a negative growth of ~35% to 0.6 million litres, compared to 1 million litres on YTD FY20. The stock of GDA is trading close to its average 52-weeks' high levels of $0.110. The stock of GDA gave a positive return of ~62.06% in the past one year and a positive return of ~34.28% in the past six months. On a technical analysis front, the stock of GDA has a support level of ~$0.076 and a resistance level of ~$0.116. Considering the current trading levels, the recent rally in the stock price, the COVID-19 disruption in operations and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $0.096 as on 8 June 2021. 

GDA Daily Technical Chart, Data Source: REFINITIV

Keytone Dairy Corporation Limited

KTD Details

FY21 Results Update: Keytone Dairy Corporation Limited (ASX: KTD) manufactures and exports dairy, health and wellness, and nutrition products that offer under the KeyDairy, SuperCubes, Tonik, and Gran's Fudge brands in New Zealand and Australia. The market capitalisation of the company stood at $36.86 million as on 8 June 2021. Despite the COVID-19 pandemic, the company reported an increase in New Zealand dairy sales to $11.3 million in FY21, compared to $5 million in the previous corresponding period.  It has reported substantial revenue growth of 125% to $50.7 million in FY21, compared to $22.5 million in FY20, where Brand sales were 6.5x larger than the FY20 result and grew to $4.2 million from $0.7 million in FY20. However, the company reported a reduced gross margin by 1.4 basis points, compared to pcp basis. The cash position of the company stood at $4.0 million as of 31 March 2021.

FY21 Financial Performance (Source: Company Reports)

Outlook: The company has faced delays in logistics which impacted the cost of goods, but the company has expected to ease down in FY22. The company expects a surge in production and delivery in FY22 due to a substantial increase in international contracts. In addition, the company's subsidiary, Omniblend, was given $800,000 Manufacturing Modernisation Fund grant by the Australian Federal Government. It also has several new product launches in the pipeline.

Key Risk: The company’s line of business exposes it to the risk of obsolete inventory, which might impact the company’s profitability.

Stock Recommendation: During the period, the company has reported more than a double in inventory to $11.1 million, compared to the previous year because of robust financial performance in FY21. The stock of KTD is trading close to its 52-weeks' low levels of $0.130. The stock of KTD gave a negative return of ~53.44% in the past one year and a negative return of ~3.57% in the past one week. On a TTM basis, the stock of KTD is trading at an EV/Sales multiple of 1.0x, lower than the industry average (Consumer Non-Cyclicals) of 6.2x. Considering the current trading levels and valuation on a TTM basis, robust financial performance, decent cash position, increased product penetration and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.130, down by ~3.0704% as on 8 June 2021. 

Note: The purple color line in the chart shows 21-period SMA . The upper 2 yellow color lines denotes Resistance 1 and Resistance 2, while the lower yellow color lines denote support levels.

KTD Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV. 

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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