Gage Roads Brewing Co Limited 

Strong Third Quarter Performance: Gage Roads Brewing Co Limited’s (ASX: GRB) stock skyrocketed 23.94% on April 30, 2018 after the company delivered very strong third quarter FY 18 results. GRB in the third quarter 2018 has posted tremendous growth (153%) in the sales of the brands compared to the previous year. The group’s result reinforces the momentum in the business to deliver earnings’ growth and value to shareholders.
 
Primarily, the growth in the sales is driven by 183% increase in sales to the independent retail channel and 445% increase draught keg sales, which was partially driven by the commencement of keg sales to Optus Stadium during the third quarter. The company has also improved the sales of the brands through the national retail chains, which grew up 58% on the same quarter last year. The company had extended exclusive Fringe World supply contract to 2021 and had appointed former Little Creatures senior marketing executive during the third quarter. The YTD Sales of Gage Roads’ brands comprise 39% of overall sales mix, which is up 32% from YTD FY17. YTD sales to independent retailers increased 184%, Gage Roads draught sales were up 275% YTD, total Gage Roads’ brands volume was up 56% YTD and total volume was up 27% YTD. The company expects to meet the full year sales target of at least 11 million Litres of underlying sales. In nine months, the combined Gage Roads’ brand sales and contract brewing volumes have resulted in a total throughput of 8.9 million litres.
 
Moreover, in the third quarter, the net operating cash inflows were $2.1 million resulting from strong sales. GRB at the end of the third quarter had cash reserves of $5.6 million. Additionally, GRB is on track to deliver growth in earnings and margins through the shift in sales mix towards higher-margin Gage Roads’ brands as the management team delivered on year 2 of the 5-year strategy. The company continues distribution and sales growth opportunities in the independent channel. The national chain volumes are in line with the company’s expectations and commitments. Further, the opportunities to continue to shift Gage Roads brands beyond 39% of sales mix will drive margin growth. The company’s focus on east coast partnerships and events will complement growing east coast distributions. While GRB stock has fallen 21% in last three months as on April 27, 2018, the stock seems to be gearing well now and trades at a slightly high P/E. Given the potential and trading scenario, we put a “Hold” recommendation on the stock at the current price of $ 0.088.

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