Investment managers raise stake in Gage Roads
While beer enthusiasts are looking to the next brewery to equity crowd fund, professional investors are looking to the ASX for beer investments.
Sydney-based Spheria Asset Management recently notified the ASX that it has upped its significant stake in publicly-listed Gage Roads Brewing earlier this month.
The filing was prompted when Spheria, which specialises in investment in small and microcap companies, raised its stake in the brewer from 5.3 per cent to 6.7 per cent. It now owns 73.5 million shares in the company.
Portfolio manager at Spheria, Marcus Burns, who was formerly the portfolio manager at Schroders Smaller Companies & Microcap Funds, told Brews News his firm has high hopes for the brewer.
“They are really cash generative and they have a good brand,” he said.
Gage Roads’ most recent annual accounts showed revenues of $33.2 million, up 22 per cent on the year before. Profits rose 3 per cent to $2.1 million, and EBITDA rose 28 per cent in the same period to $4.5 million.
“Financials are key obviously, and we think they will bring in value in three, four and five years time,” he said.
“I’ve worked overseas and looked at what other people were offering, and we did our research on the industry and competitors.
“We thought that they had a reasonable market share and that forms part of our thinking when we’re looking to invest.”
Spheria notified the ASX it had become a ‘substantial shareholder’ in February this year. Investors are required to notify the ASX when their interests in a listed company reach 5 per cent. Since March Spheria has purchased almost 20 million additional shares in eleven separate transactions, taking its holding to 6.7 per cent.
Spheria joins fellow investor IOOF Holdings Limited, which in March this year advised the ASX it had increased its holding to 66.8 million shares, or a 6.5 per cent stake.
The longevity and adaptability of Gage Roads has been a consistent theme for the business, making it attractive to investors. Last year it diversified its offering with the acquisition of Broome-based Matso’s for $16 million.
It is also set to take on the east coast and mirroring a trend which has seen breweries opening their own pubs and brewhouses after signing up to a brewpub in Sydney earlier this year.
The Western Australian brewery has been waving the flag for Australian brewers on the stock markets since 2006, just four years after it was founded by brothers John and Bill Hoedemaker.
John Hoedemaker said that the investments the brewer has made as a result of becoming a listed company have seen it grow at an accelerated rate.
“Being listed provides us with partners in capital markets that allow us to continuously invest in the scale of our business,” he said.
“We’re currently installing a 400-can per minute canning line that’s world-class, and we’ve been able to do that with funds we’ve raised from investors through being a listed entity.”
Hoedemaker said that scaling up in a controlled way was the goal in an increasingly crowded market.
“[We have] worked hard to build scale and quality assurance into the business. Quality assurance comes down to a range of areas including people, systems and equipment,” he said.
“Scale is more than just equipment, but comes with the people and experience that we have on board. At the end of the day, that allows us to deliver a high quality craft beer at an approachable price point. That’s what sets us apart.”
Getting on board with ‘premiumisation’
Gage Roads has also shown it is not afraid to adapt when it comes to consumer tastes.
According to a Roy Morgan report on the alcohol industry in Australia, which questioned 15,000 people about their drinking habits, the number of people over the age of 18 years in Australia drinking at least one alcoholic drink a week had declined from 70.1 per cent in March 2014 to 67.5 per cent in March 2019.
In their recently-commissioned analysis of the APAC region, AB InBev said that this could be put down to people drinking less, but drinking more ‘premium’ brands overall.
“The craft brewing space is considered premium,” Burns said, acknowledging the trend.
“People are drinking less in pretty much every category so Gage Roads is a good niche business which is taking share from the mainstream beermakers and quite a few other craft brewers, and we like that trend.”
Hoedemaker said that the shift toward “drinking less, but drinking better” was something that Gage Roads is aware of and adapting to.
“High quality craft beers in smaller formats are a trend. That’s an area Gage Roads and others have been targeting for some time,” he said.
Marketing a brand
Part of the recent success of Gage Roads is in the sale and marketing of their own Gage Roads branded products. Sales for this section of the business rose 47 per cent last year to 5 million litres.
“They are one of the fastest growing breweries and the top 100 according to the panel at GABS, which shows popularity in the industry as well as with the consumer, ” Burns said.
It’s Australian pale ale Single Fin made it into the top 10 of the GABS hottest 100 Aussie craft beers list for 2018, and its Atomic American pale ale made 66th on the list.
Hoedemaker hailed Gage Roads’ management and development teams for gaining such public recognition for the brand.
“We have a really broad and deep management team [and we’ve] got an innovative team that is coming up with interesting new products, and we’re doing that in a growing part of the market – that’s very attractive to investors.”
Hoedemaker said that developing the company’s marketing functions was key, and the company said it had restructured and grown its marketing team during the year, with the aim of reaching “increased sales through greater brand awareness”.
“We’re investing in growing the capability of our national sales and marketing team. We’ve created Good Drinks, to cover our full portfolio of brands including Gage Roads Brewing, Atomic Beer Project, Matso’s, Broome Brewery and Hello Sunshine,” he said.
Being a listed brewery was something he could recommend to others in the industry as it continues to expand, Hoedemaker said.
“We’re confident the craft beer market will continue to grow. Looking at the US market, craft beer is sitting at around 15 per cent of the beer market, while here in Australia it’s at roughly 10 per cent.
“Should other breweries consider listing? Absolutely. If people have growth plans and the ability to use capital better than others, the stock market will be interested in them,” he said.