Kombucha Company Says Revenues Quadrupled And Could Quadruple Again 1 comment
Sep 15, 2015 6:50 AM | about stocks: ABRW
American Brewing (OTCPK:ABRW), a rather new and thinly followed company that's trading on the OTC via an IPO last year, choosing not to come public on the OTC through the traditional reverse merger route, just told their shareholders that the reason there hasn't been any news for the last several months was due to a self-imposed quiet period. This lengthy time of silence just ended upon completion of the audit surrounding the acquisition of B&R Liquid Adventure's kombucha assets, and shareholders now have a better look into the acquiree's kombucha beverage business.
It was learned that the B&R acquisition resulted in an immediate quadrupling of annual revenues, from slightly over $1 million to $4.2 million, and lifted American Brewing into a cash-flow positive position. The company stated in an 8-K that the acquisition consisted of $260K cash, a $140K note and equity, with the 1.48 million share equity portion issued at .34 being subject to a shareholder friendly, 18-month leak out, whereby no stock can be sold for 6 months and only 15% of the shares can be sold each quarter thereafter for one year. In agreeing to these terms, the previous owners of B&R obviously displayed confidence in the outlook for American Brewing. I suspect their confidence was also bolstered when both the CEO & V.P. of ABRW recently decided to forgive $500K of the $600K in accrued compensation.
The most impressive and compelling statistic surrounding American Brewing's first accretive beverage transaction is the fact that the Kombucha brand acquisition was 26% dilutive, but in return, the company gained an immediate 300% jump in revenues while only paying .25 X sales due to a production-related lawsuit B&R was involved in, now no longer an issue. The company stated that there are other exciting "acquisitive" and "white label" deals in their pipeline that could have a similar impact on American Brewing as the first accretive acquisition, meaning yet another possible quadrupling of current revenues as I verified with the company shortly after their Sept. 8th press release.
This "deals in the pipeline" disclosure makes it obvious as to why the company simultaneously announced the Kombucha brand acquisition along with the hiring of Chuck Santry, American Brewing's new Chief Operating Officer that previously took a small food company with $800K in revenues, built it up and watched it eventually sell for $44 million to a Pepsico joint venture. Santry apparently has the same plans for American Brewing, as he focuses the direction of the company towards the fastest growing category in the beverage sector, Kombucha. With Kombucha sales expected to rise from $600 million this year to a whopping $1.8 billion by 2020 per Kombucha Brewers International, Santry is wasting no time in capturing market share.
American Brewing also provided guidance that is separate from any of the deals in the pipeline, stating revenue would grow 63% in the coming year, attributed to organic growth, addition of new store locations to existing accounts, accompanied by new accounts.
Lastly, the stock currently trades at a price/sales ratio of 1.3, significantly under that of most mature beverage companies, whose growth rate is far less than that of American Brewing. The young company appears to be very disciplined with its finances, as evidenced by its cash-flow positive position. It does trade on the OTC, but I'm a fan of them choosing to go public via the IPO route versus the traditional reverse merger route that usually comes attached with a lot of previous entity baggage. The company has not participated in any stock promotions and thus remains very much under the radar. If execution continues to follow in the footsteps of the company's first accretive acquisition, I expect the stock to garner a lot more attention.
Disclosure: I am/we are long ABRW.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Themes: long-ideas Stocks: ABRW