The market has applauded Gage Roads Brewing Co Limited's (ASX: GRB) latest quarterly results by sending the shares 4.8% higher to 6.5 cents. That compares to the 33% drop the stock experienced after its most recent quarterly results, which were released on 30 January.
So What: In the January update, Gage Roads reported an 8% decline in sales during its first half, which included a 19% decline in sales of its proprietary products. As if that wasn't bad enough management also warned of lower volumes in the second half, citing the softening liquor market during the traditionally strong summer months as the primary reason.
Although the company's latest quarterly result wasn't all good news, there were some positives to take away including:
- Woolworths Limited (ASX: WOW) — which is a major customer of Gage Roads — continued to drive reduction in inventories as part of its working capital strategy, but Gage Roads believes those inventories are unlikely to be significantly reduced further
- The company is undergoing an organisation-wide cost review to improve margins further
- Gage Roads generated $4.3 million of positive cash flow during the quarter
- New export opportunities are emerging (although this could also increase business risks)
For the year, Gage Roads is still expecting total volumes to be down 15-20% (in line with year-to-date results). Meanwhile, total carton and keg sales are down 21% over the last nine months (compared to the prior corresponding period), with corresponding revenue down 18%.
Despite these results however (and this could be one of the leading factors behind the market's positive reaction), the company said that it still does not expect to have to raise capital in the near-term to support operations. That is certainly a positive for shareholders.
Now What: Although the stock is trading at a considerable discount to its 52-week high, Gage Roads remains a risky investment prospect. While investors could certainly look to begin a small position in the company, investors who take a more risk-averse approach would be wise to focus on some of the market's other compelling growth stocks for now.
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