Brick Brewing Brews

Benj Gallander, Ben Stadelmann, and Philip MacKellar
Tuesday September 12, 2017

In July 2015, we wrote about Brick Brewing, which was trading at $1.65 and appeared to have some gusto left. This was a stock that we knew well, as way back in 2003 Benj purchased it at 67 cents. He sold less than a year and a half later at $2.34.

After that, the stock crashed, with bankruptcy a real possibility. Undeterred, Benj bought in at 25 cents in 2008, keying on the fact that George Croft arrived as the chief executive and president. Mr. Croft had recently participated in a turnaround as president of Lakeport Brewery Income Fund, with the company being sold at a lovely premium to Labatt. Could lightning strike twice?

Benj will have to watch that possible activity from the sidelines, as his shares have dearly departed. Twenty-three percent were sold at $1.46 in 2012, and there was some luck involved as all of the shares were offered. Fortunately, the market could not swallow all of the shares because trading volumes were far lower back then.

This is something important for people who participate in the micro end of the market to understand: When stocks are way out of favour, they are also usually relatively illiquid. But if the enterprise recovers, quantities often increase with the stock price, as has been the case here. That helped when the rest of the position was sold at $3.99 in July.

Brick’s recovery has not been smooth. A major part of the transition is continuing as three production facilities are being combined into one. That will reduce expenses and mean the utilization of a modern facility.

Revenue has been hopping, with fiscal 2017 revenue up to $45 million from fiscal 2016’s $38 million. Net income jumped to almost $4 million from $1.6 million. Further progress was seen in the first two quarters of fiscal 2018.

The creamy topping is a dividend that was implemented at the end of 2015 and has been increasing. The current yield is 1.8 percent. Historically, companies that establish a payout tend to do better than the markets in the following three years. Brick has done just that.

Craft brewers are all the rage with the millennial crowd. Brick was the first in Ontario in this marketplace and is highly focused on remaining front and centre with consumers. Recently, it won a number of gold medals at Monde Selection in Belgium, a country that we can certify knows its beer.

All this good news and Benj sold? That does not signify that the stock price will not continue to move upward; simply that after an enormous gain and with stock markets being frothy, taking money off the table on huge winners appears to be a prudent decision.

People who like this sector for more than just the beverages may want to take a look at Big Rock Brewery, based in Calgary. This one has taken a beating, trading around $7.50, which is less than half the valuation in 2014. Worth noting is that the daily volume is less than 1,500 shares a day, making it difficult to buy and sell.

This one has only recently been added to our Stock Watch List, so it falls into the early days category of our analysis. Odds are it will never become one of our holdings, but the merits of acquiring a position here do seem quite reasonable.