Good Drinks Australia Limited

GDA Details

Extends Opus Stadium Contract: Good Drinks Australia Limited (ASX: GDA) is engaged in brewing, packaging, marketing, and distribution of cider, beer, and other beverages. As on 24^th February 2021, the market capitalisation of the company stood at ~$104.68 million. The company notified a change in the shareholding/voting power of Perennial Value Management Limited (PVM), a substantial holder from 13.78% to 14.82%. On 1 February 2021, GDA announced that it had secured a significant extension for its exclusive cider and beer supply contract to Opus Stadium. VenusLive, the operator of Optus Stadium in Western Australia, has awarded the agreement to GDA for 5 years from 1 January 2023 to 31 December 2027.

1HFY21 Results & Trading Update: The company reported 1HFY21 results and has delivered more than expectations. It generated a revenue of $28.43 million, up by 47% on 1HFY20 and delivered a total volume of 8.6 million litres, up by 41% on a pcp basis. Its gross margin stood at 71% in 1HFY21, up by 2% over 1HFY20. The company earned a statutory EBITDA of $7.12 million. The company produced 8.5 million litres in 1HFY21, up by 40% on YoY basis at reduced variable costs (by 30%) of $0.41 c/L versus 53 c/L in 1H20. The company witnessed growth of 46% in total sales volume of its own brand contributed by all key states and markets. The company has registered growth in proportion of its own brand in the sales mix from 30% in 2016 to 72% in 1H21. The company’s Matso brand grew by 46% per annum. The company earned a net profit of $3.58 million, up by 597% on a pcp basis for 1H21. On 25^th November 2020, GDA announced the change of the company’s name from Gage Roads Brewing Co Limited (GRB) to Good Drinks Australia (ASX: GDA) following a special resolution of shareholders at its AGM and confirmation from Australian Securities and Investments Commission (ASIC). The company opened Atomic Beer project in Redfern in September 2020 and aims to make this venue profitable in next few months. The company held $5.29 million as cash and cash equivalents balance as on 31 December 2020.

Volume by Channel & Category, 1H21 vs 1H20 (Source: Company Reports)

Outlook: The company is of the view that it has gained decent momentum in 1HFY21 to experience a robust FY21. It estimates FY21 production to be around 17 million litres with 8 million litres to be produced in 2H21. The company’s strategic target is to deliver 10 million litres of incremental Good Drinks brands from FY21-FY25. As per GDA’s venue strategy, it is considering creating venues in strategic markets of Western Australia (A-Shed, Fremantle), Queensland, New South Wales (Atomic Beer Project, Redfern) and Victoria in next few years. Hence, GDA is currently evaluating potential sites in New South Wales and Queensland. The company expects total marketing expenditure to be around $10 million per year.

Stock Recommendation: The stock of GDA gave a positive return of 31.81% in the past three months and a positive return of 74% in the past six months. The stock is currently trading at its 52-weeks high price of $0.087. On the technical analysis front, the stock of GDA has a support level of ~$0.07 and a resistance level of ~$0.105. On a TTM basis, the stock of GDA is trading at an EV/Sales multiple of ~3.1x, lower than the industry (Beverages) median of ~3.4x. Considering the company’s decent performance in H1FY21, recently secured a significant extension for its exclusive cider and beer supply contract to Opus Stadium, modest outlook, and valuation on TTM basis, we give a ‘Hold’ rating on the stock at the current market price of $0.087, up by ~4.819% on 24^th February 2021.

GDA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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