Today I’m going to be looking at three companies from the ‘consumer defensive’ sector.
Two of these companies are global behemoths in the beverage sector, SABMiller (LSE: SAB) being the biggest, currently capitalised at £55bn, and Diageo (LSE: DGE) slightly smaller at £45bn. The odd one out here is a company that goes by the name of Brewdog Plc. Whether investors have heard of this company or not, it does do business internationally and, dependant on a full subscription in its recently announced equity for punks fundraising, could be capitalised at a lowly £283m.
Let’s take a look at all three to see how they stack up as potential investments.
The big boys…
Both SABMiller and Diageo are giants in the industry, they sell their wares globally, and most people will have consumed at least one of their brands, which include Peroni, Carling Black Label, Gordon’s and Johnnie Walker.
Due to their global footprint, and the defensive nature of the sector — people need to let their hair down from time to time, whether the economy is growing or not — they rightly enjoy a premium rating. Indeed, Diageo, the cheaper of the two, trades around 18 times forecast earnings and yields over 3%, whereas SABMiller trades closer to 22 times forecast earnings and yields just over 2%. They’re hardly bargains, but these shares seem to keep trading on their premium ratings — they are rarely cheap — for a reason. Just yesterday we say SABMiller shares pop 4% when MillerCoors, one of its subsidiaries grew underlying net income by 4%
It seems that investors are happy to pay up for a quality company, with leading brand names, and customers are are happy to pay for a premium product.
Now for the underdog’s story
Scottish brewer and bar operator Brewdog started life in 2007, in a shed in the north east of Scotland, when co-founders, Martin Dickie and James Watt put all of their savings into the new venture, with a vision to build a brewery that reflected their passion for great beer.
Fast forward to the year ending 31 December 2014, and the company employs over 350 people, ships beers to over 50 countries and has 28 craft beer bars around the world. It has revenue of a touch under £30m and profit after tax of around £2.6m — not bad for an upstart! The company is projecting revenue of £50m for this year and to augment that growth the company aims to raise £25m from investors by selling new shares. However, rather than going to the banks or listing on the stock market with an IPO, it is selling its shares directly to the public by launching the world’s largest crowdfunding appeal to date.
This is not the first time that Brewdog has asked its customers to help it expand through crowdfunding — it first raised money this way in 2010. Since then, the company has had two more ‘Equity for Punks’ fundraisings, the last raising £4.25m in December 2013. Today the firm has nearly 15,000 Equity Punk investors.
Brewdog is growing fast, but it wants to get much bigger. The £25m it plans to raise will be used to build a new brewery with more than with three times the output of its current brew house, Additionally, the company wants to add to its chain of 28 bars, brew new beers, build a new distillation plant and a craft-beer hotel that serves ales on tap in every room – and build a brewery in the USA.
If fully subscribed, Brewdog plans to sell 526,316 shares at £47.50 each through its Equity for Punks IV scheme. The minimum investment is two shares, costing £95 in total. The maximum online investment is 210 shares, costing £9,975, but there is no maximum for paper applications. This values the business at £283m, putting the shares on a rather scary P/E of over 100!
What’s my take?
Whilst it’s true that you know what you are getting with global giants like SABMiller and Diageo, it is hard to see where the growth is coming from — these giants, whilst undeniably quality companies, lack the growth potential that I think I could get from Brewdog. Over the long term, I could see Brewdog fit nicely into its valuation and attract a premium rating should it list on the stock market in due course. I for one will be doing some further research!
