If you’ve got a spare $1000 lying around should you invest in Parrotdog? Personally, I don’t have a spare grand and as a beer writer I prefer to stay at arm’s length (disclosure: the exception being that I still have a small stake in Yeastie Boys from back in the day when we all got caught up in the excitement of crowd-funding a brewery). I should really sell those shares but I can’t even remember how much I spent on that heady night in 2015, most likely a grand total of $500, when they raised $500,000 in the blink of an eye.
And further disclosure: I’m not a financial advisor, so make your own decisions, ok.
Anyway, I’ve watched with interest in recent years as both Parrotdog and Behemoth have gone to the public well on multiple occasions.
Just as Behemoth had their third capital raise last year, this will be Parrotdog’s third. In many ways, those two breweries feel like they are in a tussle to break out of the “large” craft brewery pack and get to the scale where Moa once dreamed of being — somewhere between corporate breweries and large craft.
A week into their bid and Parrotdog were close to $1 million, and it looks like they’ll get to their minimum of $2 million. That first $2 million will go towards new gear, including carbon dioxide recapture, as well as tanks and packaging, allowing them to pump up the volume.
And that’s the aim for Parrotdog, to continue to grow volume, which they’ve done admirably up until now but without making a profit. The next step is to grow while making a profit.
If they can do it, they could become a juggernaut.
There are a few interesting points in the documents they’ve presented. The first is their conservative valuation. They’ve used a relatively low revenue multiplier to come up with a valuation of $25 million.
The valuation equates to a multiple of 1.47x revenue of $17.3 million in the last financial year and 1.27x forecast revenue of $20.1 million for this financial year. A better traditional indication of value is a multiplier of pre-tax profit — but they can’t really use that as the company is not yet profitable.
It’s almost half the revenue multiplier that Behemoth used (3.37) in landing on a $35.9 million valuation. That means Behemoth is valued at more than what Panhead or Tuatara were sold for and a higher than Parrotdog despite being lower in revenue and volume.
I have no idea why you’d choose one revenue multiplier over another, but either way, it means Parrotdog is valued about the same as Panhead when Lion bought them in 2016.
It’s probably a fair valuation, as by the looks of the data in the information memorandum, Parrotdog are currently the largest independent craft brand in terms of market share and that’s all on the back of having the best-selling six-pack in grocery — Birdseye Hazy IPA, which in this context is the new Panhead Supercharger.
One aspect of buying in at this valuation is that there’s room for them to be valued higher, which could be realised through a sale or by potentially listing on the NZ and/or Australian stock exchange. So your $2 per share investment now might well increase. It’s worth noting that their first round of crowd-funding was $1 per share, which went up to $1.40 in the second round and is now $2.
Parrotdog used a bank overdraft facility of more than $1m to fund their recent growth in the past two years but they’ve paid that down and their current debt isn’t scary in either its size or what it’s currently costing them to service it.
HOW WILL THEY GROW?
In terms of their aim to grow profitably, how will they do that?
Birdseye is practically everywhere with great penetration (in 91 per cent of potential grocery channels) and it can’t conceivably get any cheaper than $20 (or can it?). It might be hard to lift the price as that could cost market share, and it looks like one of their methods will be to sell other Parrotdog products on the back of Birdseye, notably the low-carb and non-alcoholic beers they are introducing. Plus they will move other core range beers to a 12-pack, which is an increasingly popular offering in supermarkets — which also shows how far craft has come in the past two or three years.
The “better for you” lifestyle market continues to grow and is possibly the only part of the beer market that is growing, so being able to hook their claws into that channel will see increased revenue and potential profitability.
One thing in Parrotdog’s favour is their sales staff — they have a big team and they seem to do a good job getting Parrotdog beer ranged everywhere.
I’d back them to sell more of their other beer off Birdseye, which is the way many new people have come to “know” Parrotdog.
What are the risks?
Against them are fears the craft beer market has peaked (but we’ve heard that before!) as well as inflationary pressures driving consumers towards lower-priced options from the likes of Mac’s and Boundary Road, who appear to be the main competitors in the 6-pack hazy arena.
“There is a risk that demand for premium craft beer falls, despite the consistent strong domestic and global demand,” the brewery said in their prospectus.
“We see the risk of a downturn in the preference for craft beer being a low risk based on our understanding of both global and local market trends, and the continued emergence of craft beer. However, this risk is likely to be greater over the next year as household discretionary spending is impacted by inflationary pressures and a likely recession.”
On the upside, they have huge untapped potential in Auckland, and they believe that by increasing production capacity and scale they can be “price competitive” in the premium craft market. Here premium means all the craft that’s not Mac’s, Boundary Road and Monteith’s — so they will be fighting for share against Panhead, Emerson’s, Tuatara, Garage Project, Behemoth, Stoke, Good George and Moa, among others, although Moa seem to hover between premium craft and mainstream craft (which are terms supermarkets use).
The big question is how much love there is for Parrotdog — from a broadening market captured by hazies and in Auckland, where they hope to open a taproom.
Can the brand continue to win over people to the extent they become brand loyal and move from Birdseye into other parts of the range?
I like Parrotdog’s brand. It’s, as they say themselves, “nice”. There’s a virtue to being nice — you don’t piss people off like, for example, Moa did. Being likeable and approachable is a good way to reach past the part of the market that’s not historically craft-embedded.
But are they as captivating as Panhead was in 2016? Probably not. On the other hand, Behemoth, for example, have a very strong brand presence that seems to engender tremendous loyalty, but the brand also can be a bit off-putting as it relies on some old, same-same, tropes and a strand of humour that may not be everyone. Garage Project are an entity unto themselves brand-wise.
It’s more likely Parrotdog will be pitted again similarly approachable brands including Emerson’s, Tuatara, Stoke, Good George and Moa.
Overall, it’s a rock-solid offering with the question mark over maintaining the freight train growth they’ve created in the past three years. But the brand is loveable and built on quality and has opportunities in front of it in terms of lifestyle beer, 12-packs and the Auckland market.