Like most things, hindsight vision is 20/20. And investors use it a lot, especially when discussing deals they coulda, woulda, and shoulda invested in. Take Coca-Cola (NYSE: KO), for instance. Investing $40 for a single share at its 1919 public debut has transformed into quite a nest egg, clocking an astounding 1,426,972% gain to over $570,829 since then. But then again, that initial share is still working, and since being split-adjusted 11 times into 9,216 shares, the returns for those early investors, at least the ones that held, continue. Of course, those that invested may not be here to witness the financial triumph. But that doesn’t mean the beneficiaries of that trade aren’t still bragging about the deal.
They should. The timing of their ancestry’s investment prowess was spot-on. Of course, Coca-Cola Company did its part, too, proving itself resilient and faring better than most, even during the most challenging economic periods. People need to eat and drink, and Coca-Cola realized that long ago and followed a strategy that reflected that position. Part of that was constantly being quick to keep market share by proactively investing in new brands and segments that helped maintain shelf space, the most expensive real estate in the world.
Those investments did several things. First, it kept Coca-Cola in growth mode. Second, it created immense shareholder value. And third, it created a strategic pathway for smaller companies to follow. Specifically, it proved that by incubating brands with a broad market appeal and capitalizing on early opportunities, exponential growth is an attainable objective. Splash Beverage Group, Inc. (NYSE: SBEV) is taking a similar path.
A Steepening Growth Trajectory
And their strategic ambitions are matched by impressive performance. Since 2021, Splash Beverage Group has inked potentially transformative distribution deals throughout the United States, China, and has plans to expand into Latin America. And those deals are doing as expected, creating a foundation to create substantial shareholder value, with at least four products across different categories continuing to penetrate lucrative market segments worldwide.
Better yet, growth isn’t accidental. It’s an intentional result of SBEV being led by a management team considered a part of the Who’s Who list in the beverage industry. Some members were behind the meteoric rise of Red Bull energy drink, instrumental in taking that product from zero to billions in sales. The deals they are making at SBEV suggest that history may indeed repeat.
Already, Splash has distribution deals with powerhouse distributors like AB InBev, making SBEV brands available to millions. They also inked distribution deals with Great Bay distributors, one of Florida’s largest Anheuser Busch (NYSE: BUD) distributors, and signed others with dominant regional players like Golden Beverage Company, Anheuser Busch distributor, Bernie Little, Johnson Brothers, and divisions of Gulf Distributing Holdings, LLC. That’s not all.
Last year, they signed a deal with China-based American Software Capital, opening doors to an estimated $69 billion market opportunity. And as noted, Latin markets are expected to come int play as well, with SBEV saying they are capitalizing on development opportunities in those markets. While geopolitical climates dictate the pace of developing those two opportunities, value over the long term is in play. That’s not all contributing to the value proposition.
SBEV announced a significant expansion into Walmart, Inc. (NYSE: WMT) and its wholly-owned Sam’s Club, with 42 stores making SALT Citrus flavored tequila available to members. Indeed, the goal is to transform that 42-store deal into a national agreement with Walmart stores to distribute products nationally. If that happens, expect SBEV valuations to potentially skyrocket, especially with the industry conservatively applying upwards of 7X revenue multiples for brand valuations.
Despite earning that type of valuation, SBEV stock isn’t yet the beneficiary. However, that disconnect may soon get closed, and so may the window of discounted opportunity.
Excellent Management And Products Driving Growth
And that could happen sooner than later, with investors finally taking proper notice of the fact that SBEV has more than managerial talent to accelerate growth; they have the brands to fuel it. Currently, at least four brands are contributing to the case for potentially exponential revenue growth in 2022-23. Recent financial reports already indicate that’s happening, with SBEV scoring record-setting revenue increases quarter over quarter since 2021.
Those following SBEV don’t find the growth surprising. Brands contributing to the revenue increases are some of the most compelling brands in their respective sectors, each tapping into high-growth market segments where billions of dollars are spent annually. However, don’t expect SBEV to remain content with four products. They are on record saying they plan to continually roll up profitable brands, incubate them, and either monetize them at a 5X-10X revenue return or keep them as a part of its growing products portfolio.
By the way, new products will be added to an already excellent arsenal, supporting products that fueled a more than 2000% surge in comparative revenues during 2021. These include high-value brands Copa Di Vino wine, Pulpoloco Sangria, TapouT performance drink, and SALT Naturally Flavored Tequila. And while referencing exploding 2021 growth may be a historical point, it’s pointing to a trend.
SBEV scored record sales for the second quarter in 2022, posting a 41% increase to $4.8 million compared to the same period in 2021. The better news is that trend is expected to continue. In fact, SBEV expects to accelerate revenue growth through at least six new or expanded distribution/sales agreements with distributors or retailers.
In addition, SBEV’s $4.2 million on hand as of June 30, 2022, should be ample to support that growth. If it’s not, SBEV has been clear that it has traditional non-dilutive funding resources available to maximize its opportunities. In other words, investors fearing a continuous cycle of dilution may be unnecessarily stressed.
Bullish Case Gets Stronger
Robert Nistico, Splash Beverage Group’s Chairman and CEO, doesn’t seem concerned. He recently commented, “Our 2022 second quarter results reflect our ongoing efforts to grow the business through key distribution agreements and retail authorizations. We are exactly where we expected to be mid-year, producing another record quarter, and added 6 new agreements during the quarter, bringing our total number of new agreements or authorizations since our key November announcement to more than 20. We also announced our intention to acquire Pulpoloco during the quarter, and acquisition which hold to potential to increase margins as well as open new channels for revenue growth as we explore the opportunities presented by its unique packaging with CartoCan.”
His optimism is warranted. Investors following SBEV’s development should concur. Despite the smallcap price, they are benefiting from an excellent management team, a diverse portfolio of brands that match consumer trends, a marketing strategy continuing to yield new distribution agreements and retail authorizations, and the financial flexibility needed to expedite efficient growth. Of course, brands matter, and Splash checks that box too.
Recent growth has been led by TapouT Performance hydration and recovery drink, which continues to score impressive distribution and placement agreements. Frankly, at its pace of market penetration, nine-digit sales forecasts are being focused into the near-term crosshairs. Still, it’s not the only product targeting multi-billion dollar markets.
An Impressive Brand Portfolio
Its Copa Di Vino, Pulpoloco sangria, and SALT flavored tequila are also in play to earn national big-box distribution. In fact, combined with the extraordinary growth of TapouT, a contract with a national retailer for any of the above brands could be a revenue-generating game-changer for the company. Appreciate that potential and likelihood.
Its single-serve Copa Di Vino wine earned national attention by being the only product featured twice on the popular investment show Shark Tank. And in addition to being a delicious wine, it offers value as a leader in package sealing technology, which could open other opportunities for SBEV to monetize. That technology is so good that Copa Di Vino can remain fresh for up to a year, compared to competing brands having a sell-by date in months, sometimes only days.
Splash’s Pulpoloco sangria, a made in Madrid, Spain product, is another best-in-class product offering quality taste and compelling packaging technology. More than bringing authentic tasting and manufactured sangria to market, Pulpoloco is packaged inside what many have called the most socially conscious and eco-friendly packaging in the markets- CartoCan. It very well may be, and SBEV has exclusive rights to the unique packaging technology, which, by the way, is biodegradable in addition to recyclable. It gets better.
The innovative packaging technology is 30% more eco-friendly than aluminum or PET, uses 30% less total raw materials to create, and the raw materials that are used come entirely from renewable raw materials. That includes using only wood fibers from forests managed in an exemplary fashion, which has led to CartoCan packaging earning the exclusive right to bear the Forest Stewardship Council (FSC) label. And like Copa, the CartoCan keeps Pulpoloco shelf-stable for at least a year, keeping the vibrant character of its taste profile well-protected during that time. There are more spirits to like.
The company’s SALT Naturally Flavored Tequila targets a massive market, where 14% growth in the tequila sector in 2021 could be the precursor of a more significant increase. But here’s the exciting part about SALT’s market position; it’s a part of the flavored spirits markets that are outselling unflavored by a 10 to 1 margin. That distinction places SALT in the right market at the right time. But more importantly, it’s the right product, targeting an audience that craves flavor, variety, and life, with a lineup of naturally flavored citrus, berry, and salted-chocolate flavored tequilas offering the perfect hints of flavor.
Investors, from an investment perspective, may also enjoy the taste of this 100% agave, 80 proof product. It’s targeting the double-digit percentage growth rate of annual tequila consumption in the US markets and the surging interest in the Chinese markets, which alone could transform the SALT tequila brand into an appreciate revenue-generating asset in the coming quarters.
A Sum Of Its Parts Consideration
If so, it may be just one of four contributing. And with all SBEV products firing on all cylinders, investors not valuing the sum of SBEV’s parts to value the company more appropriately may be missing a significant under-the-radar investment opportunity. But markets that are famous for missing the mark also help expose these disconnects, making ground floor investment opportunities to those not privy to deals made by the Wall Street elite.
That would then provide similar opportunities to cash in on long-term appreciation that could rival the returns of industry behemoths. Using industry valuation models could start that process, noting that share prices at current levels neglect enormous near-term opportunities generated from brand strength. And keep in mind, at this point, justification for substantially higher prices can be supported by just four brands. Knowing that management intends to seize brand development opportunities, seeing 10-12 brands under SBEV’s direction over the next few years wouldn’t be surprising.
Thus while SBEV is an excellent company today, investors may want to value and take advantage of the opportunity to invest in a well-managed company with an even brighter tomorrow. It’s not only a timely consideration; it’s one where the valuation disconnect may be too wide to ignore.
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