We love a beer here at ShareCafe. And for those of you who like the odd cleansing ale, Gage Roads Brewing Company Limited (GRB) is an Australian-based company worth a look as well as a taste.
The Fremantle-based Gage Roads – the company is named for the sea channel off Fremantle that serves as the parking anchorage for ships waiting to enter the port – is the only pure brewer listed on the Australian Securities Exchange (ASX).
Gage Roads Brewing Company was founded in 2005 by Bill Hoedemaker and Peter Nolin, who were the brewers at the Sail & Anchor Hotel in Fremantle, one of the first modern pub breweries in Australia, opened in 1984. The pair floated Gage Roads in 2006 at 40 cents a share, raising $4 million to bankroll a marketing push into the eastern states. The company is now valued at $71.3 million.
GRN started out as a niche brewer of its own craft beers, but since 2009, when grocery giant Woolworths bought just over 25% of the company, it has moved more to a low-cost strategy of brewing beer and cider under contract. Much of the production goes to support Woolworths’ exclusive brands strategy, under which Gage Roads makes the Sail & Anchor range, Dry Dock, Clipper Light, and Castaway.
The brewing for Woolworths represents 80% of GRB’s work. The original contract was for 350,000 cartons a year but that has grown to more than one million cases.
Other contract customers include Matso’s Broome Brewery, Two Birds Brewing, McLaren Vale Beer Company, Duckstein Brewery Margaret River and the Australian Marketing Division of San Miguel Yamamura (South-east Asia’s largest food and beverage packaging company, based in the Philippines.)
Gage Roads also brews its own products, including the eponymous range, Wahoo Premium Ale, Atomic Pale Ale, Sleeping Giant India Pale Ale and Blue Angel cider, as well as occasional limited-release production runs, for example last year’s Pumpkin Ale and The Convict.
Gage Roads believes it is perfectly placed and is targeting to partner new and existing craft brands wishing to expand into bottled and draught products.
GRB broke through for a maiden operating profit in FY11 of $122,421, which it boosted to $500,730 in FY12. Revenue rose by 25% to $19.7 million.
For the first half of FY13 GRB reported excellent results with revenue up 36% on to the first half of fiscal 2012, driven by a 33% increase in total carton production volumes. Net profit surged eight-fold to $513,708.
Contract brewing sales for Woolworths increased by 23%, while other contract brewing sales grew by 91% due to the addition of new customers. Sales of proprietary brands rose by 46%. Meanwhile, keg sales surged by 148% and are beginning to contribute significantly to revenue.
GRB is investing $12.4 million to boost capacity from 1.2 million cases a year to 3 million cartons a year by 2014-15, while halving operating costs. This is where having Woolworths on board as major customer is a big plus – and not just because Woollies holds 39% of the Australian liquor market.
4 Year Capital Expansion Project – New 100hL CombiCube Brewhouse, Grain Handling, 4x100hL fermentation tanks.
The Woolworths relationship effectively lessens the financial risk for GRB as well as the business risk. For example, the budgeted $12.4 million cost of the expansion program was funded mostly by a $9.7 million facility from ANZ, which was guaranteed by Woolworths, with the balance of funds coming from ongoing operating cashflow. In April Gage Roads raised $7.4 million from institutional investor (and Woolworths, which maintained its 25% stake) and paid out $4 million of the ANZ facility.
On the other hand, there is also the fact that having Woolworths as a major customer can be very much a two-edged sword – just ask the dairy farmers how the supermarket gorilla drives down margins.
Certainly the stock market likes what it sees. A year ago, GRB traded at 5.1 cents: it is now sitting at 18 cents.
Gage Roads is difficult to value at the moment, trading on an historical price/earnings ratio of 120 times earnings and paying no dividend; and $10.8 million worth of accumulated losses remains on the balance sheet. Investors really need to see the FY13 results for a more meaningful earnings per share (EPS) figure as a basis for ongoing valuation.
But even though it appears to have run ahead of fundamentals, the company is definitely worth watching: Gage Roads has expansion plans underpinned by the Woolworths relationship, and operates in a business that is in the sweet spot of the Australian beverage market – craft beers and ciders.
In the meantime you owe it to yourself to check out the Gage Roads range of amber fluid – that’s definitely a good investment!
