Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Generally I tend to stay away from the really tiny AIM shares, but recently one has caught my eye that I think has potential. Unlike many of the popular ones with a market cap of sub-£10 million, this isn’t some oil or mining company promising the earth with some old license no one else wants, or an investment shell company.
Distil (DIS) is in the alcoholic beverages sector and was formerly known as Blavod Wines and Spirits, and changed its name last year when it moved its focus from being a distributor of third party brands, to concentrating on its own products.
The company owns a number of brands, including the Blackwood name under which it produces gin and vodka, as well as retaining Blavod vodka, and at first glance at the last set of accounts up to the end of September 2014 there is nothing to get too excited about. In fact there was a large drop in revenue caused by the change in strategy, and it made a pre-tax loss of £198,000, although margins rose to 55% and gross profit was up 8%.
At that time the company was debt-free, but with net assets of circa £1.7 million you could argue that the current market cap of £3.38 million and share price of around 0.8p are a bit high.
But a closer look reveals the progress that is being made in the US, and also the potential size of the market there given that it is now the largest consumer of gin in the world, and especially premium quality gins, many of which are exported from the UK – and Distil has now received initial approval from the US Alcohol and Tobacco Tax and Trade Bureau for its Blackwood’s Limited Edition gin (it already has approval for Blavod vodka), with full approval expected any time now.
Once that approval is granted the product will be distributed throughout the US, Virgin Islands and Puerto Rico by the Winebow Group, who will also be distributing other Distil products, such as RedLeg spiced rum, as and when they gain final approval in the coming months.
Once these approvals have been granted, it is expected that sales will be boosted significantly. Overall they were up by around 12% anyway over the Christmas period, despite a reduction in Blavod vodka in the Ukraine due to the ongoing conflict there. The company currently has enough in the bank for its current activities, having raised nearly £600,000 at 0.8p back in January.
Executive chairman of Distil, Don Goulding, has plenty of experience in the sector, having held high level positions at Diageo – including UK managing director - and with a focus on the overseas markets in his past roles. This is the sort of company to put a relatively small amount in, as it is still speculative, and then just sit on the shares long term in the hope that everything goes to plan and it lives up to its potential, in which case you will be in for a very nice surprise with the share price at that time.
It isn’t going to suddenly rocket overnight, although the various approvals could see some short-term spikes as the share price has been as high as 1.6p in the past 12 months, but barring any major problems there also isn’t likely to be much downside either.
What will really add value here is turning all the potential into actual strong sales figures and profitability, and you may have to wait for a year or two before you really start to see that. I’m not currently holding shares here myself but it is one I’m certainly considering buying a small amount of, and then just holding long term.
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