Small Caps | Feb 02 2022
This story features TOP SHELF INTERNATIONAL HOLDINGS LIMITED. For more info SHARE ANALYSIS: TSI
Post the recent Q2 market update, confidence in Top Shelf's strong growth outlook has only grown further among analysts
-Sales jumped 74% in 2QFY22
-Price targets suggest Top Shelf shares on their way to over $2.00
-Sales boost expected from new agave product
-Greater whisky supply to also buoy earnings
By Nicki Bourlioufas
Analysts’ spirits buoyed on TSI outlook
Brokers are upbeat on prospects for spirits company Top Shelf International ((TSI)), with its second-quarter FY22 liquor sales jumping 74% and recovering from a covid-19 hit during lockdowns.
Top Shelf shares are expected to (eventually) resume their path towards $2.00 and beyond as consumers head back to bars and increasingly favour locally made spirits.
Top Shelf posted FY22 second quarter unaudited revenue of $7.7m, with eastern state sales rebounding strongly after months of virus-related lockdowns.
Revenue was up 74% on the same period a year earlier and jumped 56% from the first quarter of FY22. The company completed a $35m capital raising which is funding the development of Australia’s first integrated agave distillery at scale in north Queensland, to produce a spirit similar to tequila.
The company listed on the ASX in December 2020. The shares hit a high of $2.13 in March 2020 but dropped soon after with lockdowns and a drop in on-premise alcohol sales sending Top Shelf shares down to around $1.60.
Most analysts see it back over $2.00, some forecasting the shares might climb as high as $2.51. Top Shelf currently sells two Australian spirits brands, NED Australian Whisky and vodka brand Grainshaker.
Vodka boost overcomes Covid lag
Second-quarter sales were boosted by strong growth in Grainshaker vodka sales and third-party manufacturing revenue.
NED whisky sales lagged, owing to limited supply.
Analysts are upbeat about Top Shelf’s prospects for further growth in 2022, with whisky supply expected to increase and brand momentum building into 2022 and beyond.
Canaccord Genuity expects Top Shelf will formalise more distribution agreements domestically and internationally.
“Execution on sales growth should see cash burn materially tighten in the coming quarters given TSI has invested in its people and systems ahead of this growth,” says the broker.
“We remain drawn to TSI’s ambitious long-term targets for at-scale production in each of its verticals and retain our Speculative Buy rating and $2.51/share price target.”
Canaccord Genuity forecasts net whisky sales will reach nearly $100m by FY26, broadly in line with management’s expectations.
Shaw and Partners too is upbeat and has a $2.35 price target on the stock.
“With an accelerating maturation profile across its portfolio of spirits, rising brand penetration and significant investment ahead of the curve, our view is that TSI remains undervalued relative to peers alongside a significant domestic and international distribution opportunity.”
Post the recent Q2 market update, the broker has reiterated its Buy recommendation on the stock.
Whiskey, Vodka sales to rise on more shots
Top Shelf is also directing sponsorship and marketing to high-profile events and festivals to heighten consumer awareness of the Grainshaker brand and product offering, including sponsorship at the Australian Open, the Arts Centre precinct, GOJO events, and the Australian Turf Club; all of which is expected to build awareness of its whisky and vodka brands.
Top Shelf will see a substantial increase in whisky available to harvest over the next 12 months. This will enable the company to accelerate growth in the second half of FY22, according to brokers.
Canaccord Genuity says consumer trends too are favouring locally made spirits and this will buoy sales ahead. The broker forecasts net sales value in FY24 of $201.3m based on 2.4m litres of spirits sales.
Moelis has increased its FY22 revenue forecast by 5.4% to reflect the company’s strong 2Q performance.
Despite only limited whisky available for sale in the quarter and the recent outbreak of covid suppressing on-premise activity, Top Shelf was still able to achieve strong quarter-on-quarter revenue growth.
“With ~$140m in whisky maturing between FY22-24, a continued ramp-up of the Grainshaker brand and launching of Australia's first agave spirit, we see TSI placed to continue to realise significant revenue growth and scale.”
Wilsons’ opinion is not dissimilar. Wilsons sees Top Shelf gaining spirits market share and has a $2.04 price target on the stock.
With whisky inventory increasing significantly from 2H22 levels and the company scoring a deal with a major retailer to sell its products, Wilsons is encouraged by the on-premise and festival-driven rebound in Vodka sales.
“We continue to assume a significant and sustained sales growth trajectory across the Top Shelf business, including first Agave sales from 1H24.”
Bloomberg has labeled Top Shelf’s move as “a bet on one of world’s fastest-growing spirits.”
Top Shelf CEO Drew Fairchild has forecast the agave market will be “a $9 billion market by the time we get our spirit to market in the US alone.”
The company is creating Australia’s first agave spirit range from its Agave farm in the Whitsundays in Queensland, a location chosen for its climatic suitability for growing tequilana blue agave.
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