Ontario-based Brick Brewing Co. saw both its sales and earnings jump in the latest quarter—despite increased competition and the introduction of shareholder dividends.
BRICK BREWING CO. LTD. (symbol BRB on Toronto; www.brickbeer.com) is a Kitchener, Ontario-based maker of premium and value beers. Its main brands are Brick, Waterloo, Laker, Red Baron, Red Cap and Formosa Springs Draft.
The company operates two breweries in Ontario—one in Kitchener; another in Formosa. The company sells most of its products in the province. It has less than 5% of that beer market.
In March 2011, Brick purchased the Canadian rights to the Seagram Coolers brand. These drinks include vodka-based coolers, malt-based coolers and ciders.
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More recently, the company acquired a license to manufacture and package the Motts Caesar alcohol-based beverages. It also secured the exclusive Canadian rights to both the LandShark and Margaritaville brands of beer, cider, and malt-based coolers.
The company’s revenue rose 11.6%, from $33.7 million in 2012 to $37.7 million in 2014 (Brick’s fiscal years end January 31). Revenue then fell to $36.3 million in 2015, but rebounded to $37.6 million in 2016.
Earnings jumped, from $403,000 in 2012 to $1.6 million in 2016. Earnings per share soared to $0.05 from $0.01. That’s mainly due to improving efficiency. The company is also selling more higher-profit products.
Penny Stocks: Long-term debt only 9% of market cap
In the three months ended May 1, 2016, revenue rose 23.5%, to $9.5 million from $7.7 million a year earlier. Higher volumes and selling prices contributed to the gains. Earnings jumped to $788,353, or $0.02 a share, from $30,778, or nil. That’s because recent upgrades to the company’s breweries have further improved its efficiency; operating costs fell to 65.0% of its revenue in the latest quarter from 72.9% a year earlier.
Brick’s long-term debt of $7.75 million (as of May 1, 2016) is a low 9% of its market cap. At the time, it also held cash of $1.9 million, or $0.05 a share.
The company stands to gain from rising demand for premium beers and coolers. Brick is also expanding its co-packaging business, making products under contract. In the latest quarter, revenue from co-packaging deals jumped 52.2%.
The company could become a takeover target for a larger brewer. However, insiders control 45.7% of the shares, so they could block a hostile bid.
In December 2015, it started paying quarterly dividends of $0.012 a share. The annual rate of $0.05 yields 2.0%.
The company will probably earn $0.11 a share in fiscal 2017. The stock trades at a somewhat high 21.5 times that estimate.
The outlook for Brick is positive, but the company faces an increasingly crowded and competitive premium brewing industry.
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I like the product, and should benefit from Ont. govt’s plan to sell beer in grocery stores. Still not sure if the stock is a buy though.