Good Drinks Australia Ltd  

GDA Details

Good Drinks Australia Ltd (ASX: GDA) operates as a brewing company providing a range of brands that includes Gage Roads Brew Co (Gage Roads), Matso’s Broome Brewery (Matso’s), Atomic Beer Project, Alby, Hello Sunshine, and San Miguel.

H1FY22 Result Spotlight: GDA posted decent results for H1FY22 as highlighted below:

• Experienced 26% jump in sales volume with own branded volumes surged by 15%. With the opening of the Gage Roads Freo venue, GDA posted 40,000 visitors during the first 2 weeks.
• Total revenue climbed 15% YoY to $32.7 million.
• Gross margin hit the upper target range with 68% and variable costs at $47c/L, lower than targeted $50c/L. The scale advantage along with diversified segments helped to maintain margin.
• The company upsized inventories that helped to sail through supply chain disruptions and mitigate production risk.
• It had posted an EBITDA of $6.0 million, almost unchanged from last year. Its hospitality segment worsened with a negative EBITDA of $0.2 million.
• GDA deployed $10 million towards Gage Roads Freo and it intends to open five venues in the key Australian markets.
• In November 2021, GDA acquired Joe’s Waterhole on the Sunshine Coast with an aim to develop Matso’s hospitality venue brewery and to strengthen the growth in Queensland.

H1FY22 Key Financial Metris (Analysis by Kalkine Group)

Key Risks: GDA is exposed to supplier concentration risk. Rising inflation may influence its sales price and product mix. Lockdown and mobility restrictions may slowdown its venue expansion strategy. GDA is expecting supply chain disruptions will affect its international freight costs.

Outlook:

• GDA plans to reduce its contracted brewing manufacturing in FY23. As of H1FY22, the company derives ~35% of volume from contracted brewed brands.
• It intends to maintain buffer stock in H2FY22 that helps to mitigate inventory risks.
• With rising inflationary worries, GDA has set a COGS target of $1/Litre.
• The company is on par with investment in branding with a marketing investment of $6 million in FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of GDA has been corrected by ~9.50% in the past three months. The stock is currently trading lower than the average of its 52-weeks’ low-high range of $0.770-$1.100. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the surge in volumes, diversified brands & segments, etc. For this purpose of valuation, a few peers like Lark Distilling Co Ltd. (ASX: LRK), Treasury Wine Estates Ltd. (ASX: TWE), Top Shelf International Holdings Ltd (ASX: TSI), and others have been considered. Considering the decent H1FY22 performance, favourable results from the opening of Gage Roads Freo venue, margin expansion from a spectrum of risk mitigation strategies, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.805, down ~0.62% as of 21 February 2022.

GDA 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.