Shares in craft beer brewer Gage Roads Brewing Co Limited (ASX: GRB) have fallen 6% today, despite the company appearing to post a positive operating update for the quarter ending December 31 2016.
For the quarter the business delivered a positive operating cash flow of $375,000 versus a $444,000 loss in the prior corresponding period, with significant progress made in moves to strengthen the company's indebted balance sheet.
After a $10.1 million capital raising completed over the prior quarter the company now reports that drawn debt is $2 million with cash reserves of $3 million. Still given the operating cash flows it's evident the company is operating on thin margins, although it has reported that sales to the independent retail channel are rocketing alongside draught sales to the on-premise channel.
The company also claims that the craft beer market is expected to grow at 20% per year with it having the opportunity to lift its margins via shifting its product mix towards its own Gage Roads Brewing Co. bottled beer products commonly available in your local bottle shop.
Despite the falls in today's share price it does appear that the company is moving in the right direction, although given the competitive market in which it operates and track record of problems I am not a buyer of its shares.
Due to its history of mishaps the stock is still down 25% over the past five years to trade for just 4.8 cents, with its management team generally being long on promise and short on delivery so far.
If alcohol retailers are your thing, I would prefer to look at a business like Treasury Wine Estates Ltd (ASX: TWE) that has more of a moat and higher barriers to entry. It has also suffered mishaps in the past, but does have the additional tailwind of growing demand from Asia for its premium wine products such as the Penfolds brand.
