November 25, 2022
SBEV: Executing on Strategy; Increased Distribution Driving Sales Growth
Splash Beverage Group is a fast-growing player in the beverage industry with exciting prospects across its brand portfolio, which includes Copa di Vino wine by the glass, SALT flavored tequilas, Pulpoloco sangria, and TapouT performance hydration/recovery drinks. The company's strategy is to develop and rapidly accelerate its current portfolio as well as acquire new early-stage brands. Splash is led by a management team with significant prior experience managing top brands in the beverage industry from product launch to billions of dollars in annual revenue.
Recent results. 3Q22 gross sales of $5.1M, +76% Y/Y. On a nine-month basis, revenues have increased to $14M from $8.6M last year, +64% Y/Y. Gross profit increased 40% to $1.1M Y/Y and has improved 18% to $2.6M for the nine months YTD. Cash and equivalents were $2.6M, positive net working capital of $3.5M ($8.1M in liquidity). Operating loss was $5.1M for the quarter.
Takeaway. The company understands that distribution is key to success in the beverage industry. It continues to focus on expanding its distribution network, adding nine new distribution/sales agreements with distributors and retailers in 3Q alone. As more retail and distribution partners are added, inventory stock has also become vital because the company must ensure it can adequately supply its distribution network.SBEV is currently evaluating traditional credit facilities to fund its growing inventory needs which we see as a positive sign.
The company continues to bring in highly qualified individuals to lead its growth initiatives. In November, SBEV announced that it has named James Michael Allred to the position of Senior VP of Sales. He will be responsible for leading the sales organization, driving sales initiatives through the company's growing distribution network and building the footprint of its national retail-chain customer base. Prior to joining SBEV, Allred held senior-level positions at AB InBev, with oversight of InBev's largest C-store customer, 7/11.
Outlook. We maintain our positive outlook and believe the company is executing on its strategic initiatives, which includes driving sales growth through a build-out of its distribution and retail networks. While very much still in the early innings, we believe that major distribution wins are driving an acceleration in sales and, as scale increases, profitability should follow. Additionally, there remains significant upside optionality in the development of the eco-friendly CartoCan, a biodegradable can that was acquired in the Pulpoloco acquisition, and aligns with environmentally conscious consumers. SBEV maintains exclusive North American rights to the CartoCan and we believe there may be opportunities to roll this product out across its brand portfolio or sell excess capacity. Our price target of $5, which is based on a 4x 2023 EV/Sales multiple, remains unchanged.
