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Gage Roads Brewing Co. Ltd. (GRB)
Western Force Partnership
Key Points
• 2-Year partnership agreement announced: GRB has been appointed as the Official Beer and Cider Partner of the Andrew Forrest backed Western Force. The sponsorship will prominently feature GRB’s two WA Alby lagers which aligns well with the Western Force, Andrew Forrest and their strong ties to Western Australia.
• World Series Rugby competition started this month: Andrew Forrest’s newly created competition kicked off to a sell-out crowd of over 19,000 people at Perth’s NIB stadium. The tournament features against teams from around the Asia Pacific with seven games held in WA and will conclude in August. The tournament will be televised across Australia on Channel 7 and Fox Sports, providing good national exposure for GRB’s brand. Next year the tournament is expected to evolve into a six-team Indo-Pacific Rugby Championship.
• Good fit with GRB’s “brand-in-hand” marketing strategy: The partnership agreement will also allow GRB access to supply its beer and cider to the 32 community Rugby WA clubs based in Western Australia. This will provide a significant opportunity for GRB to increase its consumer awareness of its brands in line with its “brand-in-hand” strategy, where consumers can to try their products while enjoying events.
• Ongoing marketing is key for brand awareness: In September 2017, GRB announced that it had won a tender allowing the exclusive pouring rights at the Optus (Perth) Stadium which will be important in driving brand recognition, essentially providing free marketing of its products. In January, GRB signed a two-year partnership with Rugby Australia to be one of the official beer partners at the HSBC Sydney 7s three-day annual event. GRB is continuing to look for marketing opportunities across Australia where its sponsorship fees are expected to be recouped through sales at venues and should have only a minor net financial impact.
Valuation and Recommendation
We value GRB at $0.12 per share using DCF methodology and maintain a Speculative Buy recommendation. We believe that the Optus (Perth) Stadium tender win along with other key partnerships will provide the marketing platforms to assist GRB with its five-year strategy of increasing volumes of its higher margin, craft-brewed products while stepping down production of its lower margin contract brewed beer.
The shift in production profile should see a lift in margins and translate into strong earnings growth over the next few years. We believe that GRB is well placed to take advantage of the growing craft beer market which is currently experiencing strong tailwinds.
https://www.djcarmichael.com.au/news/2018/5/22/gage-roads-brewing-co-ltd-grb
DYOR.
