Guest Value^2 Posted February 15, 2014 Share Posted February 15, 2014 Russell Breweries Inc Undervalued turnaround situation. Currently badly managed, but seems to be turning around. Last year ebitda positive and now showing some sings of growth and may be able to turn some profit. Company Website: http://www.fortgarry.com/ http://en.wikipedia.org/wiki/Fort_Garry_Brewing_Company Description: Russell Breweries Inc is a Canada-based company. The Company brews, markets, sells and distributes a diverse portfolio of beers that are produced by its wholly owned regional breweries: Russell Brewing Company in British Columbia and Fort Garry Brewing Company in Manitoba, operates in two craft breweries producing beers for pubs, restaurants and liquor stores. The Company’s operations include production facilities in Surrey, British Colombia (BC) and Winnipeg https://www.google.com/finance?q=CVE:RB Key Financial metrics: http://ca.finance.yahoo.com/q/ks?s=RB.V Financial information: http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00016831 Pros Undervalued Fundamentals improving Technical analysis bullish Huge upside / Limited downside Activist catalyst?? *** Cons Badly managed Still quite illiquid (even volume seems to be growing). *** http://tinyurl.com/activist-catalyst CMCC owns at least +16% I don't know latest number, how much insiders control, but it might be something 25%? Do you think this is just financial investment for CMCC, or are they trying to take over? I would like to hear some comments. Disclosure: Long RB Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 15, 2014 Share Posted February 15, 2014 Oddly - we've been looking at them as well, but an entirely different POV ;) Just about everything about their stock, valuation, & management is sh1te; except for their tanks, water supply, & legacy supplier contracts from their Molson days. The brewery would never have been built were it not for the provincial laws at the time, & its capacity is too large for the Manitoba craft market. Net of dismantling, relocation, & reassembly; you could buy the tanks out of liquidation for about the current EBV - inclusive of a small risk premium. But .... if you contract brewed for an Imbev or SAB (to fill the high volume tanks), canned for Manitoba craft brewers & delivered their beer to the equivalent LCBO, Beer Store, the economics would be very different. Some rough numbers: The average net profit/can sold through the LCBO is 35-40c, but you wait 7 months to get your cash. A 10hl tank system will produce beer in around 2 weeks from scratch; but a 100hl tank system will do it at around 60% of the cost - net of volume discounts & economies of scale. Beer sold through kegs in a pub/bar/restaurant is 2-3x more profitable but comes with significant rebate & bad debt collection expense. Ultimately this was too early for us, & there are others closer to home; but we would expect a privatisation in the none-too-distant future. SD Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 15, 2014 Share Posted February 15, 2014 Nothing wrong with exporting, except that water is heavy & expensive to move. I will be studying Brew School on-line for the next few years with the objective of becoming a globally designated Master Brewer .... & to push that process a bit, I expect that in the next year or so, I will take on a part interest in a local brew-pub to build the practical brew-house experience. In the meantime, look at the Craft Brew Alliance (BREW-Q) ;) SD Link to comment Share on other sites More sharing options...
Parsad Posted February 15, 2014 Share Posted February 15, 2014 I thought most of you guys were more observant! ;D Cheers! Link to comment Share on other sites More sharing options...
tengen Posted February 18, 2014 Share Posted February 18, 2014 I thought most of you guys were more observant! ;D Cheers! Well, well! :-) Link to comment Share on other sites More sharing options...
SharperDingaan Posted February 27, 2014 Share Posted February 27, 2014 This whole thing is just so wrong ... 500K @ 9% + 4M warrants that were issued in the money - and this is before the related party transactions. Borrow 500K to buy a house, & you will pay maybe 5.5% - at best. SD Subsequent Events On January 20, 2014, the Company entered into a loan agreement with Weichun Ye, Yan Zeng and Dongbing (Derrick) Ma (Guarantor) for an aggregate principal amount of $500,000 bearing interest at a rate of 9% per annum calculated and compounded semi-annually. The principal amount of the loan is due and payable on the earlier of December 31, 2015 and the occurrence of an event of default as defined in the loan agreement. The Company’s obligations under the Loan Agreement are guaranteed by the Guarantor and, in consideration for acting as guarantor, the Company has granted to the Guarantor 4,000,000 non-transferable warrants, each warrants entitling the Guarantor to purchase one common share of the Company at an exercise price of $0.05 per share until December 31, 2015. Link to comment Share on other sites More sharing options...
OracleofCarolina Posted June 26, 2014 Share Posted June 26, 2014 not sure if this affects them, but I thought some folks might be interested http://online.wsj.com/articles/tom-acitelli-rising-hops-prices-make-craft-brewers-jumpy-1403737009 "The popularity of hopped-up beers has led to a serious hops shortage in the U.S. That shortage drove the average price for all hops to $3.59 a pound in 2013, up from $1.88 in 2004, according to the nonprofit Hop Growers of America. The Washington-based merchant 47 Hops warned this spring that choicer hops, including Cascade, "will likely be over $10 a pound" by the end of 2014. This spells trouble for smaller craft brewers, who produce fewer than 15,000 barrels annually. The increasing cost of hops could put them out of business—ironically, amid steady growth for the industry. Link to comment Share on other sites More sharing options...
Parsad Posted June 26, 2014 Share Posted June 26, 2014 not sure if this affects them, but I thought some folks might be interested http://online.wsj.com/articles/tom-acitelli-rising-hops-prices-make-craft-brewers-jumpy-1403737009 "The popularity of hopped-up beers has led to a serious hops shortage in the U.S. That shortage drove the average price for all hops to $3.59 a pound in 2013, up from $1.88 in 2004, according to the nonprofit Hop Growers of America. The Washington-based merchant 47 Hops warned this spring that choicer hops, including Cascade, "will likely be over $10 a pound" by the end of 2014. This spells trouble for smaller craft brewers, who produce fewer than 15,000 barrels annually. The increasing cost of hops could put them out of business—ironically, amid steady growth for the industry. I HOP so! Russell is very well capitalized, and we expect smaller brewers to go out of business at some point, so we can acquire quality brands, equipment, etc at a fraction of the price. In many instances, prices will be passed on to consumers, so quality brands with loyal drinkers should continue to do fine. Incidentally, Russell's "Wee Angry Scotch Ale" won the 2014 Canada Beer Awards gold medal. If you like Guinness, you'll love this. Same bold taste but a bit lighter so it doesn't fill you up. I'll bring some to MPIC's 2015 AGM at Roy Thomson Hall. Cheers! Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 27, 2014 Share Posted June 27, 2014 This spells trouble for smaller craft brewers, who produce fewer than 15,000 barrels annually. The increasing cost of hops could put them out of business—ironically, amid steady growth for the industry. They just will not be producing hop bombs. Something tells me there will just be a lot of wheat beer speers (spirit/beer) & spiders (cider/beer) this beer season SD Link to comment Share on other sites More sharing options...
oldye Posted June 27, 2014 Share Posted June 27, 2014 Craft Beer is becoming more like wine everyday, people are willing to pay the added cost for more flavor. Almost 20% Growth YOY in $ Sales in the U.S. Craft beer is now 20% of total beer sales in some parts of the country, the rest will soon follow. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted June 27, 2014 Share Posted June 27, 2014 http://www.bloomberg.com/news/2014-06-26/molson-ceo-says-craft-beer-companies-are-massively-overvalued-.html?cmpid=yhoo Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 27, 2014 Share Posted June 27, 2014 Molson's is talking their book, but they are right medium term. The industry drives all players to get bigger, & craft brewers have been drinking the kool aid. You're not a 'real brewer' ... unless you offer multiple brands .... unless you do > 60,000 hl/yr. So the brewers, like farmers, oblige with continual expansion ... debt financed. Those 6-11 hl systems they all used to have are todays 2nd hand starter kit. Every craft brewers dream is to get 'bought out', & grow by dint of making 'great beer'. Most do make really good beer, but suck at business. Todays craft brewery is also yesterdays .com in many places. It is a great niche, but players have to stay small & continually jab at & use the big boys as a foil. Swatting gnats takes too much work, swatting fly's is usually worth while. In a few years you will be able to buy out your choice of many of these brewers for a song; but this time it will be the businessmen running the show, with established brands, & contract brew masters brewing the beer. You can spend your 1st 5 years building the brand & clientele, or you can wait & expand someone else's existing business when they get into trouble - as a partner. You will still be able to get great beer, & Molson's will still be making water. SD Link to comment Share on other sites More sharing options...
Parsad Posted June 27, 2014 Share Posted June 27, 2014 Molson's is talking their book, but they are right medium term. The industry drives all players to get bigger, & craft brewers have been drinking the kool aid. You're not a 'real brewer' ... unless you offer multiple brands .... unless you do > 60,000 hl/yr. So the brewers, like farmers, oblige with continual expansion ... debt financed. Those 6-11 hl systems they all used to have are todays 2nd hand starter kit. Every craft brewers dream is to get 'bought out', & grow by dint of making 'great beer'. Most do make really good beer, but suck at business. Todays craft brewery is also yesterdays .com in many places. It is a great niche, but players have to stay small & continually jab at & use the big boys as a foil. Swatting gnats takes too much work, swatting fly's is usually worth while. In a few years you will be able to buy out your choice of many of these brewers for a song; but this time it will be the businessmen running the show, with established brands, & contract brew masters brewing the beer. You can spend your 1st 5 years building the brand & clientele, or you can wait & expand someone else's existing business when they get into trouble - as a partner. You will still be able to get great beer, & Molson's will still be making water. SD That's exactly the plan at Russell. Currently, we are growing organically, solidified the financials, and focusing on expansion using our expanded sales team. At some point in time, we will acquire many of our competitors who came into the craft brewery business with enchanted dreams and not enough fiscal restraint. Vancouver is behind Portland, but you've got a new craft brewery opening up every other week here. The market is just warming to craft beer and sales are growing strong. In a few years, as the cycle stabilizes, and competition is heated, only those with strong balance sheets or funding will move on. The turnaround by Ben at Russell, was as fast and amazing as Sardar's turnaround at Steak'n Shake! Cheers! Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 27, 2014 Share Posted June 27, 2014 RB has prospects, but I think they could do something about the share-count ;) Cheers, SD Link to comment Share on other sites More sharing options...
Parsad Posted June 27, 2014 Share Posted June 27, 2014 RB has prospects, but I think they could do something about the share-count ;) Cheers, SD We'll work on that at some point in time, as we continue to generate positive free cash flow. First job was to turn it around by becoming consistently profitable; expand the sales team and reach; recapitalize it; and finally grow the brand organically. Cheers! Link to comment Share on other sites More sharing options...
yadayada Posted June 27, 2014 Share Posted June 27, 2014 beer usually has pretty high brand loyalty right. At least I am very loyal to my two brands of belgium beers. Parsad, you are an activist investor in this or something? Link to comment Share on other sites More sharing options...
Parsad Posted June 27, 2014 Share Posted June 27, 2014 beer usually has pretty high brand loyalty right. At least I am very loyal to my two brands of belgium beers. Parsad, you are an activist investor in this or something? We originally thought we might have to be, but when Ben took over as CEO, he cleaned house and put in his own team. I then met with him and found he's an amazing manager. Never been involved with a beverage or brewery company, yet he turned the company around in six months...profitable the first full quarter he took over! The company had not been profitable in any given year for over 7 years! We've had three consecutive quarters of profits and revenue growth...I suspect we'll see a full year! We are by far the largest shareholder at over 18%. You've got fans of Jones Soda on this board...I too am a fan of the product and brand...but Jones is not at all profitable and does roughly the same revenue as Russell. Both companies had roughly the same equity a year ago, and the disparity is becoming quite apparent. Russell is retaining capital, while Jones is burning through it. Yet Jones valuation is over 3 times higher than Russell! Russell's beer just won three medals in the Canadian Beer Awards, including the gold medal for their "Wee Angry Scotch Ale". Go figure! Maybe they need Ben in there at Jones! ;D Cheers! Link to comment Share on other sites More sharing options...
yadayada Posted June 28, 2014 Share Posted June 28, 2014 what do you think is an appropriate multiple? they did 93k in net income last quarter, that is less then 400k$. Which is about a 15x multiple. Which isn't too bad? Growth is priced in, and liquidity is a bitch with this one. Ill be following this one closely tho :) Link to comment Share on other sites More sharing options...
beerbaron Posted June 28, 2014 Share Posted June 28, 2014 Wow, with SD and Parsad involved in the brewing business I might lose my nickname BeerBaron. I recently invested in some brewing equipment, I hope to get a good return on it. See attached... BeerBaron Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 28, 2014 Share Posted June 28, 2014 Add this to your bar, & you will we beyond cool. http://beerstreetjournal.com/a-hops-bar-to-dry-hop-your-own-beer-video/ Do it Vancouver, or on the Island & you would triple your sales in < 2 months. Do it in Toronto, & everyone would think you were selling them dog sh1te ... way too stuck up! SD Link to comment Share on other sites More sharing options...
Parsad Posted June 28, 2014 Share Posted June 28, 2014 what do you think is an appropriate multiple? they did 93k in net income last quarter, that is less then 400k$. Which is about a 15x multiple. Which isn't too bad? Growth is priced in, and liquidity is a bitch with this one. Ill be following this one closely tho :) I don't want to tell you what you should pay, but you should remember that Ben has only had three quarters under the helm, without any help from me. The expanded sales team and market didn't even go into effect until the 2nd quarter, and as quarters go by, he'll find more efficiencies. I would suggest that $400K in net income is on the low side once the business is running efficiently and his time spent on growth becomes apparent. Another way to value a beverage business is by book value, and generally depending on profitability, many are priced between 1.5 and 2.5 times book. Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted June 28, 2014 Share Posted June 28, 2014 Wow, with SD and Parsad involved in the brewing business I might lose my nickname BeerBaron. I recently invested in some brewing equipment, I hope to get a good return on it. See attached... BeerBaron Nice! You got a kegerator. Can we get Russell on one of the taps there? ;D Cheers! Link to comment Share on other sites More sharing options...
beerbaron Posted June 28, 2014 Share Posted June 28, 2014 Nice! You got a kegerator. Can we get Russell on one of the taps there? ;D Cheers! You sure could, you made my mouth wet when you talked about that Stout. Hummm Dark Beer... Add this to your bar, & you will we beyond cool. http://beerstreetjournal.com/a-hops-bar-to-dry-hop-your-own-beer-video/ Do it Vancouver, or on the Island & you would triple your sales in < 2 months. Do it in Toronto, & everyone would think you were selling them dog sh1te ... way too stuck up! SD Some people might come out with weird combinations there... I can easily see some people turning their wheat beer into a double IPA with the citra hops. Not the same beer at all. Something to try tough! I'm in Montreal and there is no shortage of great beer drinkers, they would try anything for the love of beer. BeerBaron Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 28, 2014 Share Posted June 28, 2014 Re valuation. Keep in mind that Canadian beer sales are very seasonal; summer sales can easily be 3-4x what they are in Winter. Buy in Spring, sell in Fall, & hope for an extended Indian Summer :) Re taste profiles: Some of the better adjuncts are chile, lime, ginger, mango, banana (via yeast), sorghum, & crème-of-tartar; but you will only see them in really good Caribbean, Indian, & African restaurants - & they will be brewed specially for those restaurants. Think the malty/mango lager, or darker/ginger stout to go with your curry, sold in 6oz servings to minimize bloat. Chile & lime infused ales to go with your jerk chicken. Beer pot & calabash with your sudza & gravy. Not mass market, therefore you will never see it; & a craft brewer will not do it because it is not 'real beer'. Businessmen have an entirely different view. SD Link to comment Share on other sites More sharing options...
yadayada Posted July 14, 2014 Share Posted July 14, 2014 it seems margins for beer companies are all over the place. There are ones with 5% margins and ones with 20% margins. And size is not necesairily that important. how much pricing power do these guys have compared to other brands? I cannot really find prices anywhere. nevermind found it, seems all priced the same. Is there a way to import these beers to europe? Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now