Wednesday, 23 December 2009

A Stone's throw away?

I got a couple of emails yesterday morning highlighting the potential failure of BrewDog's Equity for Punks. It seems that they are only about 2/3rds of the way towards their minimum share uptake. If they don't hit the target of raising £500,000 then they have to give all the money back, including the £230 that I gave them.

Now some would think I should be grateful if that happens. I'd have had a close shave from the humility of BrewDog running off with my money and Martin and James making themselves rich. It's a poor investment after all, as the company can't possibly be worth £23 million. The really bizarre thing is I can't bring myself to think that way. It is possible that I've been brainwashed by BrewDog's viral marketing. Perhaps I'm completely barking mad. If that's the case then I blame Bracken, that particular BrewDog has a charm all of it's1 own.

So, why do I not want my money back? Well firstly because they are remaining right on track with financial performance. Turnover this year is expected to exceed £1.85 million and next year's turnover, with new contracts that have been won, will hopefully be in excess of £3.6 million.

They have stormed the world with Tactical Nuclear Penguin. They have installed a new brew-house. James gives more reasons in his Call to Arms as to why you should invest. In James' words in an email to me:
"A lot has happened since we launched EFP and it has all been overwhelmingly positive for the company"
BrewDog have been granted the planning permission for their new brewery. This apparently adds £3.5 million to the balance sheet. I think it is fairly difficult to value the company now; it's a fast moving target. One thing is for sure the value of the company is growing at an astonishing rate. OK, my investment might not be worth £230 yet, but it's getting closer and you never know, I might one day have the last laugh over the sceptics.

But - It's about more than money. BrewDog are giving an injection of vitalisation into the UK beer market. OK, not everybody welcomes their brash and alternative slant on brewing and marketing beer. They are challenging some of the entrenched views on beer but at the same time keeping an eye on the traditional market by putting out fantastic cask beers. I know, I was bowled over by Trashy Blond recently. For these reasons I'd like to see them grow.

One area of critique of the Equity for Punks initiative is questioning the reasons for growth. Why do they need a bigger brewery? In my view this is fairly simple. They are currently working night shifts to meet demand. The products regularly go out of stock on the web site and the demand for products will outstrip their ability to brew without this expansion. One criticism is the lack of cask beer availability. They can't get more cask beer out if they haven't got the brewery capacity.

Stone Brewing are thinking of opening a brewery in Europe. They claim there is demand for their beer. Perhaps there is but to me BrewDog have the ability to produce products as good, if not better than Stone. There is a market for these types of beers and for me I'd prefer BrewDog to take more share of the market rather than see Stone do that, not that I wish them any harm and it'd be even better if there ends up being room for both.

If you don't like BrewDog then don't invest in them. If you haven't got the money to risk then like any investment, don't risk it. If you don't do investments then fine, don't break a habit of a lifetime just cause I say so. Think of it just as a BrewDog fan club for sad impressionable beer geeks if that makes you feel happier.

You can invest on-line, it's dead easy. You will be able to do it on Christmas day if you like, spend that cheque that came from relatives on something for the future rather than putting it in the bank account and it being swallowed by the humdrum of utility bills. Perhaps you are looking for a Christmas present for somebody you really care about, who likes beer and BrewDog. There is no Christmas post to worry about. The notification all comes through by email and you can do the shopping at 23:59 on 24th December if you like2.

But, if you do like BrewDog and you have got the money then why not invest? Sure, it's a risk and the wise money is still unsure about the value. It isn't about the money though, it's about there being more exciting beer to be had, about having a say in what happens at the brewery and about 20% lifetime discount off their beer. It's about a BrewDog fan club for sad beer geeks like me3.

So, if you were wavering about the deal, thought you might but were unsure, then it's a punt. If it works out then those of us who have invested will have the last laugh. If it fails then I'll look a big fool, even more than usual. Nobody can be sure but an adventure into the unknown is much more exciting than standing on the sidelines criticising those of us that are prepared to take the risk.

You have until 8th January 2010 to make up your mind.


1I have been unable to positively ascertain the gender of Bracken, and I'm not going to risk upsetting the canine toothed charmer, in case I get it wrong and offence results in strategic height teeth being used against things that are precious to me.

2You have to remember that an email address and details of the person you wish the share(s) to be registered with will need to be entered rather than your own. I'm assuming there is no legal reason why this can't be done.

3And I know of several people for whom I have high regard will be tut, tutting at me over this post. Well sorry guys, something has captured me on this one so take the piss out of me if you like, saves you the job of thinking about it.


Cooking Lager said...

It's a punt that one day, maybe my £230 investment might be worth £230? That's a punt?

Nah, a punt Dave is on a share that is worth the £230 and one day might be worth £500

Good look to you Dave, but really its not an investment, it's a fan club membership fee.

Except you don't get a furry gnasher badge like you do from the Dennis the Menace fan club.

Looks like the the Brewdog gamble that there were enough mugs in the world hasn't resulted in there being enough mugs. But at least they now know how many mugs there are.

Unknown said...

And if it ends up being worth £500, and it might, what then?

Of course we might never find out if there really aren't enough "mugs"

Whorst said...

Don't fret Dave. When Stone merge with Brewdog and call themselves Stonedog, you'll get your money. I'm sure you've heard that Stone want to brew in Europe??? My guess is they merge with Brewdog, forcing the name change to Stonedog. I will discuss this tomorrow.

Kristy said...

I do happen to ave a gnasher badge though - could be yours for £230

Unknown said...

Yes Wurst, this is why there is a hint at the Stone thing in the title and buried in the piece. I think Stone and BrewDog are close and would rather work together than as competitors. I think the timing of the two are more than just a coincidence.

Kristy, nah, I'd like to take you up on the offer, but I spent my last £230 on BrewDog. If the Equity for Punks thing fails I'll think about it.

Unknown said...

Another thought on the value. The money is being used to build a new brewery. Once it is built my share will be worth at least £230. I'm investing in a new brewery on top of the company as it stands now.

Cooking Lager said...

The fundamental value of the £230 share, Dave is around £50, give or take, and being generous to the company. The minute you take ownership of the share you have something that is worth no more than £50 on the secondary market, but as it’s not publically traded that’s if you can find a buyer.
In order to be worth £500 it would require a 1000% increase in value. That’s not an increase in the value of its core assets, but an increase in its profitability, its ability to generate cash. Can you see them doing that and remaining the niche innovative company you admire? Can you name a brewer that has ever enjoyed growth from regional to national or international from neither of the 2 methods, discounting on price or brewing a uniform consistent product with mass appeal?

You are a nice guy Dave, I like you, I like the fact you like Brewdog, I like the fact you want to buy 10p pieces off them for a quid, I love the blog. I hope my comments are neither hurtful nor offensive because you are too great a guy to fall out with, but it winds me up when you call it an investment. By any definition of the term investment, it isn’t one. I’ll stop raining on your parade now and let you enjoy throwing your hard earned down the grid.

Oh and 50p for the badge is my best offer, Kirsty. Read too much Ben Graham to pay over fundamental value for owt.

Whorst said...

Stone's beers are better than Brewdogs. Firstly, they've got consistency down and they've been doing it longer. Casks are showing up in a lot of places in San Diego and as far north as Santa Monica. If this merger goes down, it will greatly effect craft beer in the UK. You'll start seeing more and more smaller breweries brewing the West Coast style of hoppy ales. They already are now. I see a proper introduction of Proper Real Keg as well. Example: "Sorry, we're out of Stonedog IPA on cask, but we do have it in Proper Real Keg format."

I expect this to be a very big topic amongst blogger scum. Some will be pro, some against. Roger Putz will have a coronary. He'll probably end up buying stock in Greene King and Marstons.

Anonymous said...

I prefer BrewDog's beers to Stones, but would welcome an infusion of West-Coast style brewing in the UK. I think it would open the market to new ale drinkers-- I could go on.

I want the BrewDog thing to much so that I had to scrounge to find the cash for one share (some might say foolishly). Buying two just isn't possible, or reasonable!

Sid Boggle said...

Sorry Dave, but I'm going to plug my blog here...

We'd need to know more about Stone's proposition for a European brewery, but my bet is they won't suck in new beer lovers, since they don't brew a 'crossover' beer like SNPA.

To the topic at hand... I don't think Dave can't dispose of his interest (i.e. share) for a few year according to the prospectus, whatever happens. If the stories about a 2/3 take-up are correct, then perhaps there's a good fit between Stone and BD - there's a new brewery on paper with planning consent, but maybe not sufficient capitalisation, so perhaps Stone's money and BD's create a premises that works for both, building on the synergies they've already been building.

I don't think their portfolios are so similar so debates about whose beers are 'best' are irrelevant, but it would be a waste if we simply had a 'Stone Europe' which replicated their US portfolio. I'd prefer they followed through on what they did for JDW last year and re-imagine a beer with local ingredients. Otherwise, any green dividend would be wasted on shipping ingredients.

Whorst said...

Mister Mind Boggler, I've taken your bait and added you to The Guild. I'm not sure what you have to offer. Tracks, comedic relief, in depth beer journalism?? Most of your type make me ill, but that's a bit reactionary isn't it?

Sorry for the rant Dave. I'm off work, supping a lovely pint of Pliny The Elder. Hoppy goodness coming through, with a tad of marzipan!

Velky Al said...

I would love to see BrewDog succeed in their Equity for Punks scheme, simply because they make good beers and are a breath of fresh air in the UK market.

Perhaps a way forward to suit both BrewDog and Stone would be for Stone to take up the remain third of the share issue, and allow BrewDog to brew under license, the only thing that would bother me is the usual results you get when Brits try to do something American style.

As to whether or not your investment is worth 230 quid, that is surely a case of if it worth it to you, then that is its value. However, it is kind of worrying what would happen to BrewDog should the scheme fail? Will they have the money for the new brewery and the bold expansion plans?

Sid Boggle said...

Whorst: my type? You appear to be 'one up' on me, and therefore have me at a disadvantage. At least you're drinking a decent beer as you write... ;-)

Sid Boggle said...

If Stone took equity in BD, I'd expect it to be on the terms Griffin did, not the EFP proposition...

Griffin: £600K = 12.5%
EFP: £2.3m (in 10,000 individual shares) = 9%

Whorst said...

Boggle, your type as in "Blogger Scum." Where have you been?? I have run two campaigns and am currently on a third, IGNW. If Blogger Scum were say, Superman, then I'd be Kryptonite. I hope that clarifies my position. Drinking beer is great fun. Waxing poetically about marzipan, malt character, and overall geekery offers very little. Before you start calling me a retarded septic, let me inform you that I am completely anglosized, meaning I've lived on the island for two years. Did my yeast collecting gig, visiting over 35 breweries, including the now defunct, King & Barnes, Eldridge Pope, Gibbs Mew, and worked for Young's while they were in Wandsworth. This was twelve years ago. As an individual with an above average intellect, I fail to understand beer blogging, thus I combat it with my own arsenal of nudes, tracks, and cunning insight. You take total blessed care and try not to follow the sheeple.

James, BrewDog said...

Hey All,

our company is realistically worth around £10m at the moment. The Griffin deal was done at just over £5m, since then we have got the planning permission and grown a lot.

But let's leave valuations aside. If you buy a case of beer per month from our online shop you will have a 100% return on your investment in 28 months. What other investment can guarantee this? After just over 2 years you are in a better position financially regardless of how much we grow!

Shareholders will also get first options on any new and special beers, be invited to our (soon to be legendary) AGMs and also be able to vote on key decisions online.

This is a new type of business model for a small company and a completely revolutionary way for people to get involved in the ownership of a brand they feel passionate about.

Unknown said...

Ah, Sid, I forgot about Griffin. They are important. At the time they invested, which I believe was June of 2009, the equivalent proportional value of my shares would be about £67.

The Griffin group are investment company. They invested a 12.5% share which puts BrewDog PLC value at £7.5m (James commented as I started to type this, seems he disagrees slightly with my figures, ho hum) The point is, if BrewDog have pulled a fast one on me because in reality my share is only worth £50 at best, then they have managed to do that with an experienced investment company, albeit at a lower rate. I don't think Griffin are that stupid.

At the figure James gives for the company of £10m my share is now worth £90. But I'm not investing in the company now, I'm helping to fund a new brewery and so my share will be worth more when (if) the brewery gets built. The only real risk is that the brewery doesn't get built.

And it's not about the money - it's about the dream.

The Stone thing is interesting. I don't know if there is something going on there or not. What I know about BrewDog is that they always manage to pull a new trick out of the hat. Tokyo* was great, Penguin was better and that took 18 months to make. The damn company has only been around for 2 years and they started to plan Penguin in the first year. What is James planning now that will be unveiled in 3 years time?

Hopefully it will be a great new beer to coincide with when my share gets to the value of £300.

Unknown said...

To all ranty people, it's fine to rant on here. Try not to make it personal, that's all.

And Sid, for the record, I have absolutely no objection to links within comments, unless it's stupid spammers and then they just get deleted.

Cooking Lager said...

@ Brewdog James
No, let’s not leave aside what your business is actually worth. Especially not as you’re flogging shares in said business. The value of what you’re flogging is pretty key. Heard it all before pal about revolutionary business models in the late 90's when unprofitable dot com companies with stupid valuations were hitting the market with a revolutionary new business model. Warren Buffett was right about that then and he's right when he says work out the fundamental value of a company and buy below within margin of error. Just open a fan club and have done. You are ripping off the gullible calling it an investment, and your rights issue is a disgrace.

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