Small Caps | Dec 10 2021
This story features TOP SHELF INTERNATIONAL HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: TSI
Young gun spirit producer Top Shelf International is eyeing expansion into the agave spirit market in what could be an Australian first, supported by strength in its whisky and vodka divisions.
-Top Shelf International is investing in agave spirit production, with an aim of FY23 launch
-Strength in established brands supports innovation in the agave spirit segment
-The brand offers a local alternative to a market saturated with international product
By Danielle Austin
Spirits producer Top Shelf International ((TSI)) is taking steps to be a first-mover in the agave spirit market off the back of strength in its existing lines. The company currently produces bottled whisky and vodka, as well as canned ready-to-drink goods, that retail in the mass spirits market at under $60 per bottle through its NED Whisky and Grainshaker Vodka brands, both of which have been recognised as the fasting growing spirits in their respective categories.
With strength in existing brands providing stability, the company is pursuing a first-mover advantage in the agave spirit market in Australia. The company is developing Australia’s first commercial agave facility in North Queensland, alongside facilities with the capacity for end-to-end distillery and production of agave spirits such as tequila and mezcal.
The company’s agave spirit products are expected to launch in late FY23 at between $70-150 per bottle. A locally produced agave spirit has potential to fill a gap should supply constraints continue, and support increased Australian spirit consumption.
Investing in across-the-board growth
Top Shelf has invested more than $40m in distilling, production and maturation facilities to increase production across brands.
With strong sales in the core NED whisky division, the company has taken steps to increase product available to the market. An expected 1.5m litres of whisky are set to reach maturation in the next two years, equating to $111m in sales value, and more than 1m litres are expected to mature each year from FY24-26. The whisky and bourbon segment is Australia’s largest spirit category, and there is likely notable room for growth for Top Shelf in the segment.
The recently launched Grainshaker vodka division has capability to produce around 1.2m litres annually, representing annual sales of $80m at full production capacity. Production capacity is not currently being utilised, but the company is targeting over $50m in sales in FY26 and notes production can be ramped up quickly given the spirit does not require maturation.
Top Shelf is targeting more than $250m in annual sales by FY26, comprising $100m each from NED whisky and the forthcoming agave spirit line and $50m from Grainshaker vodka.
Noting that Top Shelf trades at a significant discount to its key peer Lark Distilling ((LRK)), Shaw and Partners has recently initiated with a Buy rating and a target price of $2.32. The broker sees significant potential for increased consumption of locally produced spirits that Top Shelf may be positioned to benefit from.
Canaccord Genuity has also recently initiated on the company with a Speculative Buy rating and a target price of $2.51. The broker also noted strength in existing operations given the company doubled sales in FY21 to $21m.
After another recent initiation, Moelis is Buy rated with a target price of $2.08. Moelis expects Top Shelf to be positioned for significant revenue growth between FY22-24.
Ord Minnett is Speculative Buy rated with a target price of $2.51. The broker expects benefit from agave spirit production to begin impacting in FY24.
Wilsons is Buy rated with a target price of $2.16.
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