Update: American Brewing (ABRW) changed it’s name to New Age Beverage Corporation and symbol to (NBEV) to better reflect the business effective August 5th.
Some of the best stock picks I’ve known feature small companies that had what it takes to successfully refocus their businesses to take advantage of a high growth market opportunity.
So what does it take to successfully refocus a business to increase shareholder value and share prices?
- a laser-like focus dedicated to an unconsolidated, yet booming market
- the right product that has strong competitive advantages in the market
- a balance sheet that allows the company to focus on the new, or previously underutilized direction
- the right management with the right connections and experience in the space to make the decisions that will drive success
American Brewing Company (ABRW) has all of these requirements in place right now, and investors can reasonably expect strong gains in market share in coming quarters.
American Brewing Company (ABRW)
Shares issued/outstanding: 15.4 million
Closing Price 4/5/2016: 0.40
Market capitalization: $6 million
Float: 5.9 million
2014 sales: $1,069,898
2015 sales: 10-K pending
American Brewing Company, Inc., produces and sells healthy, functional beverages. The Company recently sold off all underperforming beer/microbrewery assets, and is now focused completely on the high growth, functional beverage market. The Company’s key product, the Búcha™ Kombucha brand (web site) of kombucha is currently distributed to 1,800 stores, including Whole Foods, Kroger, Safeway, Jewel Osco, Shaws, and others, with major expansion plans on tap. American Brewing Company was founded in 2010.
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The Booming Kombucha Market
Americans are simultaneously ageing and becoming more health conscious, creating strong growth in the “functional beverage” market. Functional beverages are drinks that keeps one’s body hydrated and provide overall nutritional well-being. Functional beverages may also help address health issues and can include ingredients such as herbs, vitamins, minerals and amino acids to additional raw fruits and vegetables. Consumers are also trending toward non-sugary beverages with fresh and organic ingredients. Meanwhile the market for carbonated soft drinks/sodas has been on a steady decline for over a decade… see: Soda Consumption Falls to 30-Year Low In The U.S. (Fortune Magazine).
Kombucha is one of the leading growth products in the functional beverage space today. Made from sweetened tea that’s been fermented by a symbiotic colony of probiotic bacteria and yeast, kombucha is called the “Immortal Health Elixir” by the Chinese, and has a rich anecdotal history of health benefits like preventing and fighting cancer, arthritis, and other degenerative diseases.
The global kombucha market is forecast to grow from just $ 0.6 Billion last year to $1.8 Billion by 2020, and at a CAGR (Compound Annual Growth Rate) of 25.0% in the United States according to Markets and Markets research.
Clearly, the kombucha market is entering a very strong growth phase. As you’ll see below, American Brewing Company is well positioned to capitalize on this growth with a kombucha product that is far superior to the competition.
A Better Kombucha Product
American Brewing Company entered the kombucha market last year with the acquisition of the Búcha™ Kombucha brand (see web site at mybucha.com). The acquisition was 26% dilutive, but resulted in an immediate revenue increase of over 300%. Prior to the acquisition, Búcha™ Kombucha grew sales by 79% from 2013 to 2014. (Audited 2015 sales are pending).
I spoke with Brent Willis, the new CEO of American Brewing Company, (and previously the President for Coca-Cola in Latin America, the Global Chief Commercial Officer and Zone President at AB InBev, and the Chief Executive Officer for Cott Corporation, the world’s largest retailer brand beverage company), to find out what differentiates Búcha™ Kombucha from the competition.
I found that other kombucha beverages usually have a sour, even “vinegary” taste. However, Búcha™ Kombucha has a proprietary extraction process that eliminates sour taste and appeals to more customers. In fact, Brent Willis explained that Búcha™ Kombucha contains the preferred flavor taste profile by 43% vs competition. As a result of the great taste available in 7 flavors, Búcha™ Kombucha is now outselling competitors 1.7 to 1 in sales per point of distribution.
Additionally, Búcha™ Kombucha has a proprietary production process which makes it the only kombucha tea with a stable and consistent shelf life of up to 9 months. Most competitors have a shelf life of 3 months or less. The added 6 months of consistently stable product can lead to broad distribution systems that would allow the company to distribute on a global scale one day. And from a consumer point of view, people naturally reach for products with expiration dates as far out as possible, particularly ones that involve a live colony of desirable probiotic bacteria.
To summarize: Preferred Taste + Longer Shelf Life = Superior Kombucha Product that Outsells Competitors.
Now Focused as Pure Play Healthy Beverage Company with Clean Balance Sheet
- Improved income statement by removing an increasingly competitive, non-profitable business unit and all the associated taxes, liabilities and obligations
- Improved balance sheet, eliminating long term debt and interest and removing other long term liabilities, thus creating an immediate increase to earnings
- May devote all resources and managements’ time and effort toward a focused goal related to the healthy beverage/ healthy food segments
- Reduced expenses related to public filings by eliminating an entire audit and the costs with maintaining those books
- Decreased payroll and related expenses by one third
- Can create a company vision statement that focuses on the functional beverage category and thereby create a message that can be clearly identified by consumers and stakeholders alike
The removal of all long term debt from a non-profitable business unit creating an immediate increase to earnings is undoubtedly positive here. At the same time, the beer asset sale allows the Company to maintain a laser-like focus on the high growth, fragmented kombucha market.
The Right Management
Brent Willis may be the new CEO of American Brewing Company Inc., but he comes from senior management of the largest beverage companies in the world.
Here are some highlights from his LinkedIn profile:
• Developed and implemented the strategy and business plans that created AB InBev (NYSE: BUD)
• Led the largest turnaround in Coca-Cola Company history as Division President in Latin America
• Lead multiple PE-backcompanies to leaders in their respective verticals
• Launched Kraft in China, Stella Artois worldwide, and multiple other brands in markets globally
• Completed and/or integrated and captured synergies in more than 40 acquisitions worldwide
• Lead multiple PE-backed companies to leadership in their respective verticals
• Developed the Category Management System for Kraft Foods throughout the United States
• Former US Military Officer; West Point graduate; University of Chicago MBA
When I spoke with Brent last week to prepare for this article, I asked him what attracted him to American Brewing Company. His response was simple: The Company has an existing product that’s great and can compete very successfully in a high-growth market with the right marketing and channel development.
Brent Willis sees “huge legs” for the Búcha™ brand, and added that:
Shareholder Call Tomorrow at 11:00 AM EDT
The Bottom Line
American Brewing Company has taken the steps necessary to successfully capture a high growth market opportunity:
With a current market capitalization of just $6 million, there is plenty of room for share price appreciation during 2016.
Keep in mind that during the last quarterly report, American Brewing Company had turned cash flow positive due to the Búcha® Kombucha acquisition.
With a freshly cleaned balance sheet, a great product with proprietary, competitive advantages in a market with a 25% CAGR, and world-class leadership, don’t be surprised to see ABRW shares trading above $1/share in the not-too-distant future.
Best wishes for profitable investing!
Please read disclaimer
Disclosure: Receipt of $7,500 from American Brewing Company for 3 month investor awareness program.