When we first highlighted New Age Beverages Corp (NASDAQ:NBEV) back in August last year, as part of this piece, the company traded for circa $1.50 a share. We concluded with this statement:
“Currently trading with a market cap of $32 million, NBEV is one of the most exciting stories among small caps… We wouldn’t be surprised to see New Age Beverages Corp as a takeover target. “
Fast forward a few months and we highlighted it again in November. This time, we concluded with the following:
“We think this growth is just the start of a much stronger trend in sales growth, and as such, we’re looking for (a) 75% upside on current valuation, and that’s just based on what we see as a lag between current intrinsic value and markets aligning with such.”
On June 5, 2017, New Age went for just short of $7 a piece. That’s a close to 400% appreciation for readers that agreed with our thesis. New Age has corrected a bit since June 5 and currently trades in and around $6 a share. We think this correction is just that – a temporary correction – and, in turn, that it’s an opportunity to pick up an exposure to this stock’s continued upside run at a discount.
Here’s what we’re thinking.
For those new to this one, it’s a drinks company that formed way back in 2003 with a goal of acquiring and distributing/retailing various brands of so-called healthy living drinks in the US. As we noted previously, things didn’t really start moving for the company until 2016, when it listed on the OTC, consolidated a bunch of drinks brands and started distributing the through various channels in the US.
Over that last couple of months, we’ve seen things really start to heat up, and it’s the momentum on the back of this activity that we’re looking at as driving New Age throughout the remainder of 2017 and beyond.
Mid-May, we got first quarter earnings. The numbers revealed gross revenues of $11.43 million – a 1,800% increase year over year. Gross profit came in at $2.8 million – another year over year increase, this time of 1,900%. Net loss for the period came in at $707,000 and adjusted EBITDA came in at a $159,000 loss.
On June 10, management announced the closing of an acquisition of The Marley Beverage Company. This is a big deal for New Age and one that had been on the backburner for a while. The terms were linked to the company’s share price, so the longer the closing drew out (and the higher New Age went), the more it would end up costing. The closing, therefore, was a real strong step forward and adds circa $10 million revenues to New Age, with this number set to expand parallel to the rollout of a host of fresh brands throughout the remainder of this year. We’re going to see a portion (expected at around 50%) of Marley’s revenues consolidated in to second quarter financials, so the headline revenue growth reported on the back of these numbers is a major near-term catalyst.
We also saw two more acquisitions, one of an entity called Premier Micronutrient Corporation and a second of American Brewing Company. Finally, we got an uplisting and a bell-ringing for management at NASDAQ open.
And here’s where things get interesting. The slide below is being passed around the message boards and was actually featured as part of this Seeking Alpha piece back at the start of June.
It’s no longer available as part of the company’s official presentation, so it looks as though management decided to pull it from the deck and keep the specifics of its growth strategy quiet.
The interesting thing is that the first three company types on the list correlate with the three acquisitions to-date. Same revenue (approx.), same type, etc.
This means that the next two, a coffee company with $84 million in revenues and a Non-carb company with $60 million revenues should be next. It also looks like only one of these is going to be a stock deal, and the other is going to be funded by a $60 million loan. If this loan is non-dilutive (and management seems to have worked hard to minimize dilution to date, so there’s a good chance it will be), these acquisitions could be game changers for New Age.
There’s a lot of ifs here and that translates to plenty of speculation, but (again) if the ifs prove not to unrepresentative of the forward reality of this company, it’s only going to strengthen going forward.
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Image courtesy of New Age Beverages Corp.
Disclosure: We have no position in NBEV and have not been compensated for this article.