Sunday, 17 July 2011

New BrewDog B Share issue

For some reason my blog statistics are showing it is being found using search terms like "BrewDog share price" and "BrewDog AGM" - That might be because I was the very first person to sign up to their "Ordinary B" shares and blogged about it. It might also have something to do with a new share issue by BrewDog.

I've decided not to extend my investment in BrewDog, I need all the money I have to invest in my own stainless steel. It does however enable me to look back at what my share has been doing. At first sight it doesn't look good. The new shares cost £95 for 4. I paid £230 for one. Hang on, what's going on?

Looking at 4.3.2 in the offer document tells us:
the existing issued share capital (following the re-classification referred above), being £51,609.50 divided into 100,298 "A‟ Ordinary Shares of £0.50 each and 2921 "B‟ Shares of £0.50 each, will be sub-divided into 1,002,980 "A‟ Ordinary Shares of £0.05 each and 29,210 "B‟ Shares of £0.05 each;
(Lets ignore what appears to be a typo in the glossary under "existing B share")

So, my one share gets divided into 10 each worth £23.75 - I've made £7.50 then as it would now cost me £237.50 to buy more of the same. The down side could be that I currently own 0.00097% of BrewDog, but because of the new share issue it will drop to 0.00089%. However, this should help the company grow still further. I'll have a slightly smaller share of a much bigger beast.

Since I invested in BrewDog the sales have increased by around 8 times. The current share issue price values the company at nearly £27m. Is that an appropriate value for a company that turns over £6.5m, looks like being able to make in excess of 10% profit on turnover and has net assets of £3.4m?

I don't know, I'm not an expert on these things, and perhaps the value is currently a little optimistic. If the plans work out, and so far I feel that everything promised (apart from my Equity for Punks password) has been more-or-less realised.

If the plan carries on with the same level of success that has already been achieved then a further 12 fold increase in the size of the business is possible. I've had people criticise me for calling my purchase of shares an investment; Call it what you want, I still see it as an investment and if I didn't need to invest in my own brewery I would certainly have considered buying more of BrewDog.

And it's far more than just looking for a financial return. I strongly believe there is a stagnation in the British brewing industry. Sure, there are many more breweries than there used to be, but many of them are putting out beer that could do with a lot more interest. We went out last night and the only decent beer we found was Stringers Victoria IPA, we should have patronised one of the pubs that serves Hardknott, I know, but we like a bit of variety. The rest of the beer we found was nothing more than micro-brewed beer made and sold to a price rather than quality and with very poor brand image. BrewDog is one of a number of breweries that are leading the British brewing scene away from stuffy, stagnation generating tradition and into the 21st century. Indeed, without BrewDog as an example, I doubt I'd have had the gumption to do what I have done with Hardknott. I also suspect that there are other breweries who have been similarly significantly inspired, even if they prefer not to be as overt about it as me.

Call it copying if you like, call it band-wagon jumping if it makes you feel better, or just view it as a realisation of where the real market expansion in beer lies. Beer revolution or just appealing to a potential market? it matters not when comercial success is important to keeping your brewery alive.

So, if you have some spare cash, why not buy some shares? you might lose the lot, but then, you could just keep your money in the hands of the bankers if you prefer.

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Another view on the subject is written by Neil and there is also the one from The Beer Monkey

26 comments:

Steve Lamond said...

I went for 12 (£285) largely to benefit from the 20% discount online (and 5% in bars) by my reckoning I would have already saved ~£50 this year if I'd had the discount.

I think I'd still want to invest without this incentive though as I want the new brewery to be built so that I can get their beers in a larger number of places. I'd love to see more of their core range in cans, I'd love to see a brewdog font in every wetherspoons. These things can only be realised with a larger brewery and I'd like to do my bit in helping that get built.

I'll not be too bothered if the shares fall in value, though I think this is unlikely, nor do I mind about dividends. I'd just like the company to grow.

Incidentally I think there'd be interest in a Hardknott fundraising scheme. Perhaps get people to sponsor bricks in a future brewery building or something. I'd contribute (though not at the moment as I've just spent so much on brewdog!)

Roger Humphreys said...

Great blog. They are an exciting outfit that's for sure and suporting them are the owners of Anchor Steam who are international brand consultants. Seems expensive to me if you compare to Sharps. All the upside is built into the price you are paying and there are risks. Also much growth might be coming from the retail side. Might be woth £95 for the AGM though...

Yvan Seth said...

The AGM kicked donkey, and the £ value (in freebies) of both our trips up to the brewery combined with the 20% shop discount has probably covered the cost of the two (now 20) shares we bought around 1.5 years ago.

And that's not to mention the value of being "part of the club". I've met great people via BrewDog (HardKnott Dave & Ann being two of them), had exclusive or early access to all their special beers, and discovered the whole world of US craft brewing thanks to them (though I think I'd have come across US beers on my own eventually:)

I'm sounding like a fanboi now... so should note I don't like some of their marketing. Hate the CAMRA/Craft/RealAle/blah arguments and attacks - and think BrewDog have "gone too far" (IMO) on more than one occasion. That said, can't help loving their beer!

Oh, I just got an email... time to go order 2 of those exclusive beers right now! The Equity Punks' Black IPA and something called Prototype 17... and here's me wasting time writing these words ;-)

[I, also, would be interested in a HardKnott fundraising scheme. Anything from a "membership" scheme that gives early/guaranteed access to small-batch beers, through to equity!]

Ed said...

It looks to me more like you're paying for membership of the Brewdog fan club. Which is fine if that's what you want to do but it's not for me.

HardKnott Dave said...

Ed, I think you are probably largely right. And if you don't truly believe in what BrewDog do, then really you shouldn't invest.

However, all the benefits are worthwhile, the discounts (if you are lucky enough to be able to get a password out of them, which to my irritation I have STILL not got) - The AGM is worth going to. News etc.

I also think that BrewDog will eventually bring me return on my original investment, but you really do have to have an insight that many don't to believe that.

StringersBeer said...

Ooh, ooh, I know, Brewdog decoder rings. That'd be sweet.

HardKnott Dave said...

Now look Stringers, if you don't stop taking the piss I'm going to stop being nice about your beer. Yellow Lorry was on in The Manor tonight, incidentally. I had a whole pint and I think it might just have been the best beer there.

StringersBeer said...

Dave, back in the 80's I joined ABC's (The band, w/ Martin Fry, you remember) charter club (ironically, I swear). All I got was a badge, a "passport" and an awful limited 12 inch remix of "Look of Love" which I may still have somewhere. The BrewDog thing (with the discount club aspect) looks like a pretty good deal. And I love the way it's packaged as "shares". Does anyone else remember when banks used to give out toy chequebooks to kids? Brilliant.

P.S. You're very kind to say so.

Mike said...

And I love the way it's packaged as "shares".
Is it not shares then ?

Saga Of Nails said...

So are these things not real shares then ? I have looked and don't really understand fully. If they were transparent shares in the company, I would probably be willing to go along, but they do seem to be invites to a fan club rather than actual shares. Just what is the difference here ?

Velky Al said...

Perhaps I am being either a cynic or a wild idealist, but can you be both punk and capitalist? I always thought the two were mutually exclusive.

Being serious though for a moment, though still somewhat cynical, wasn't the stated aim of the first share issue to raise the money required to build an eco-brewery just outside Aberdeen? Yet it seems this latest share issue/dilution of existing shareholders stakes is with the very same aim in mind. Where then did the money from the first share issue go?

Neil, Eating isn't Cheating said...

Thanks for the link Dave. I was interested to see your comments about the value of the original shares, this was something I looked for within the prospectus (although I must admit I skimmed most of it).

I'm glad to hear that per share the original batch of shares now equate to a value slightly higher than the new batch. If anything that makes me more confident of buying the second batch.

The value of these shares though ultimately comes down to what brewdog decide they are worth, they hold all the cards as these arent public shares traded on the stock market. The wording is such that they have the final say when all is said and done. I just hope they reward those who have made an investment, as we genuinely want them to succeed.

HardKnott Dave said...

They are shares. The contention is whether or not the shares are worth what is being asked. I think they now are. I bought at a time when they were very probably overpriced by about 5 times, but I had confidence in James and Martin to carry it off and at the very least, worst case scenario, make my money back.

The extra sweeteners are what Stringers is alluding to; the fact that there are beer discounts and a right to attend the AGM, join in with share holders brewdays, might be no better than a tacky badge if you have no intention of buying BrewDog beer in any significant volumes, but that does not detract from the point that the shares are now worth there or thereabouts the amount asked for.

The way that the shares will eventually be traded, all a little unorthodox, I'll admit I'm not sure how this compares. Only time will tell what this really means to investors.

Al, Punks <> capitalists? Is there much difference between a capitalist and a anarchist? And not much difference between a anarchist and a punk?

As for the first share issue being for the building of the new brewery, the amount they aimed to raise was, if memory serves, £2.2m and in the end they raised about £600k. That original money helped to expand the business to the £6.5m turnover now being achieved. A further £1.5m or more is needed to ensure the new brewery gets built. I believe the figures are not much different to the original prospectus.

I hope that answers everyone's concerns.

But it is always important to note: If you cannot afford to loose the money, do not invest, and that advice is no different to any other investment.

However:

"Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover."

-Mark Twain

Yvan Seth said...

@Mike
@Saga Of Nails

They are real shares.

I.e. they really do represent the ownership of a little bit of BrewDog. Should the company go up in value then so will the value of the shares. Of course this isn't much use until you can actually trade the shares!

From an investment PoV I think this would go under "high risk"... I.e. I wouldn't invest your entire pension fund in BrewDog ;-)



@Velky Al

I think it's something along the lines of:

a) The planned brewery simply wasn't going to be big enough. They need to build an even bigger brewery. For this they need more dosh in the coffers, one way to raise capital is to sell part of your company.

b) There has been a lot of demand for a 2nd share offering.

So I guess they decided that the public share offering was a better option than taking a bigger bank loan or selling the equivalent equity to a big investor. There's enough fools (myself included;) out here who'll throw money at them - who needs banks or corporate investors? :)

StringersBeer said...

I didn't say that they weren't shares. They're a particular kind of share.

I'm guessing that the (1) valuable fan/discount club membership will be worth considerably more than any return you'd get as (2) an investment per se. i.e. they're primarily the former rather than the latter. This is discussed more fully here. But calling it a fan club would sound a bit naff, so you've all agreed to call it something else - a "share offer". And why not?

I wasn't being sarcastic, I really do like this packaging.

Steve Lamond said...

From what I understand we can sell the shares on at a later date for the going rate. The fact that they've increased in value means that it is a worthwhile investment on that alone, even if you might get a bigger return elsewhere.

As mentioned in the prospectus and alluded to by Dave. The initial round of shares did not raise enough money for their new brewery. There would have been enough for their initial plans but due to growth so far and that forecasted they've decided to future proof by building a much larger brewery=a need for more funding. They have kept a sizable sum of the share income in a savings account and have various loans to purchase equipment rather than tapping into it.

And yes, the shares aren't publicly traded as they're a private limited company rather than public limited. In effect we are being made staff by buying in. The B type shares only make up a small proportion of the total company with the majority being A-type being held by the three directors, James, Martin and some other chap whose name escapes me at the moment

Des de Moor said...

I thought about becoming a punk with equity (as a former anarchist) but haven't quite overcome my cynicism. However I would definitely invest in HardKnott.

Frugal Foodee said...

I was a member of the New Model Army Fan Club, this got me heads up on the latest releases and a better chance of getting tickets.

However, the fiddle player left and Justin Sullivan went solo. This is why I'll never invest in a fan club again. Too many bad memories.

Saga Of Nails said...

Yvan Seth, thanks for the clarification. If they are real shares with a value roughly what they are sold for then I'll probably try to get some.
The thing is, I don't massively like many of their beers, and their Gonzo marketing seems attention seeking to me. But I do recognise that they are talented, highly driven and seem to know how to find their market. So they'll either crash and burn or continue their meteoric rise. Worth a couple of weeks wages, I'll wager.

(Mind you that Zeitgeist was the best damn beer I sold in those two years.)

StringersBeer said...

Hey, Dave, what's with all this "Lone Voice" link spam all over the bottom of this page?

HardKnott Dave said...

Stringers, wha?

StringersBeer said...

On the article page http://hardknott.blogspot.com/2011/07/new-brewdog-b-share-issue.html

in the "Stuff that links here" (i.e. the backlinks) section

HardKnott Dave said...

Oh, dunno Stringers, I shall look into that. Currently covered in beer owing to stupidly forgetting to turn of a valve before disconnecting a pipe. Like you do.

mike said...
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mike said...
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mike said...

Does brewdog use a brand consultants