Home Deep Analysis Innovation Beverage Group (IBG) Begins US IPO Rollout

Innovation Beverage Group (IBG) Begins US IPO Rollout

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Innovation Beverage Group (IBG) Begins US IPO Rollout


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A Quick Take On Innovation Beverage Group Limited

Innovation Beverage Group Limited (IBG) has filed to raise an undisclosed amount in an IPO consisting of common stock and warrants, according to an F-1 registration statement.

The firm formulates and markets a variety of alcoholic and non-alcoholic beverages in Australia and the United States.

IBG is a tiny company with revenue growth that has flatlined.

I’ll provide a final opinion when we learn more IPO details from management.

Innovation Beverage Overview

Seven Hills, Australia-based Innovation Beverage was founded originally as Australian Boutique Spirits to develop premium and super premium alcoholic and non-alcoholic brands for sale through distributors and direct to consumers.

Management is headed by Chief Executive Officer Dean Huge, who has been with the firm since February 2022 and was previously CFO of Splash Beverage Group (SBEV) and CFO of Discovery Gold Corporation.

The company’s primary offerings include:

Bitters

Light spirits

Non-alcoholic spirits

Innovation Beverage has booked a fair market value investment of $3.9 million as of December 31, 2021 from investors including Samstock SZRT, 114 Assets and others.

Innovation Beverage Customer Acquisition

The company sells its products through online ecommerce websites and through offline distributor networks such as through Coca-Cola Europacific Partners, Australia’s largest beverage distributor, according to management.

In 2021, the firm generated 64% of its revenue from the Australian market and 36% from the US market.

Sales and Marketing expenses as a percentage of total revenue have risen as revenues have plateaued, as the figures below indicate:

Sales & Marketing

Expenses vs. Revenue

Period

Percentage

2021

15.3%

2020

4.1%

Click to enlarge

(Source – SEC)

The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was 0.0x in the most recent reporting period. (Source – SEC)

Innovation Beverage’s Market & Competition

According to a recent market research report by Grand View Research, the North American market for spirits was an estimated $154 billion in 2020 and is forecast to reach nearly $279 billion by 2028.

This represents a forecast CAGR of 7.7% from 2021 to 2028.

The main drivers for this expected growth are an increase in demand for premium quality products with unique flavors and distinct tastes.

Also, the chart below shows the historical and projected future growth of the US spirits market:

US Spirits Market

US Spirits Market (Grand View Research)

Major competitive or other industry participants include:

Angostura Bitters

Lyre’s

seed lip

Dan Murphy’s

First Choice

Sans Drinks

Others

Innovation Beverage Group Limited Financial Performance

The company’s recent combined pro forma financial results can be summarized as follows:

Slightly contracting topline revenue

Increased gross profit and gross margin

Reduced operating profit

Below are relevant financial results (combined pro forma) derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

2021

$5,919,405

-0.6%

2020

$5,956,854

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

2021

$3,170,090

2.4%

2020

$3,094,963

Gross Margin

Period

Gross Margin

2021

53.55%

2020

51.96%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

2021

$44,490

0.8%

2020

$1,074,650

18.0%

Net Income (Loss)

Period

Net Income (Loss)

Net Margin

2021

$31,286

0.5%

2020

$982,798

16.6%

Cash Flow From Operations

Period

Cash Flow From Operations

2021

AFTER

2020

AFTER

(Glossary Of Terms)

Click to enlarge

As of December 31, 2021, Innovation Beverage had $1.6 million in cash and $2.8 million in total liabilities.

Innovation Beverage Group Limited IPO Details

Innovation Beverage intends to raise an undisclosed amount in gross proceeds from an IPO of units consisting of common stock and warrants.

No existing shareholders have indicated an interest in purchasing shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

to pay, in connection with the acquisition of Reg Liquors LLC d/b/a/ Wired for Wine, USD$600,000 to the seller, for working capital and for general corporate purposes, including operating expenses. […] We believe that the net proceeds from this offering and our existing cash will be sufficient to fund our operations through at least the next 24 months.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said the company is not a party to any legal proceedings that would have a material adverse effect on its business.

The sole listed bookrunner of the IPO is EF Hutton.

Commentary About Innovation Beverage’s IPO

IBG is seeking US public capital market investment to fund its acquisition of Reg Liquors LLC and for its general corporate expansion plans.

The company’s financials have generated slightly reduced topline revenue (year-over-year), higher gross profit and gross margin but lowered operating profit.

Free cash flow for the pro forma unaudited combined financial statements was not available.

Sales and Marketing expenses as a percentage of total revenue have risen sharply as revenue has flattened.

The firm currently plans to pay no dividends (although it paid out a dividend in 2021) and intends to retain most future earnings to reinvest back into the business.

The market opportunity for spirits and related products is large and expected to grow at a moderate rate of growth over the coming years.

EF Hutton is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (40.2%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

The primary risk to the company’s outlook is tiny size and thin capitalization as it seeks to expand in large markets with significant competition.

When we learn management’s assumptions about pricing and valuation, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

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