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One problem for investors wanting to quaff Big Rock is that the stock trades seemingly by appointment.

Todd Korol/The Globe and Mail

Please don’t be upset with us because we live not only in Ontario but also Toronto, the land where Premier Doug Ford made the big pronouncement of “buck-a-beer.” We can smell your hoppy jealousy. On the Progressive Conservative’s website, Mr. Ford stated, “Our plan puts people first. For too long beer consumers have been forced to pay inflated prices for beer to increase the profits of big corporations. We’re going to allow price competition for beer and this will save consumers money.”

Cool one.

So being activist sleuths, we shuttled off to The Beer Store to check out the $1 products. Our search revealed that President’s Choice had offered them for about as long as you could say, “Chug, chug, chug.” Not one other company took the Premier up on his offer, declaring the price too low, given quality considerations along with production and other costs. Evidently firms are governed by the brewers’ moral compass and did not want to lower quality, one that might not necessarily affect many politicians.

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Our history with investing in this sector is limited but exceeding successful. In 2003, Brick Brewing was quaffed at 67 cents a share and sold a year and a half later at $2.34. At the end of 2008 when flirting with bankruptcy, the Ontario brewer (now called Waterloo Brewing Ltd.) was reacquired at a quarter and spun out as high as $3.99 in 2017. The wait proved worthwhile.

The latest play in this sector is Big Rock Brewery (BR-TSX). While another grand slam like with Brick is not anticipated, a triple seems possible, as it used to trade north of $19. Revenue in the most recent quarter was $8.9-million. Profitability has been spotty, with losses in four of the past five years and a net loss of $900,000 this quarter. That was better than the $1.7-million loss in the first quarter last year. Cash flow was barely positive. The debt load has remained tame, sitting just below $5-million. Their lender has voiced support as Calgary-based Big Rock copes with a loss of sales at some locations, because of coronavirus. This has included a debt and interest deferral for three months.

Even before COVID-19 reared its ugly head, president and chief executive officer Wayne Arsenault had his work cut out for him. From 2016 to 2019, Albertan taxes on Big Rock’s beer increased by 160 per cent, making it tougher to juice the bottom line. Last year, however, the government reduced the mark-up policy making beer more affordable. That should help. And cuts to the work force were made along with looking in other crevices to reduce expenses. Ultimately this will aid both cash flow and the bottom line.

Mr. Arsenault has extensive experience in the beer industry, having worked at Molson Coors Beverage Co. before becoming a vice-president at New Brunswick-based Moosehead Breweries Ltd. After a brief detour as CEO of Corey Nutrition Co., he returned to the beer business with Big Rock about three years ago.

One problem for investors wanting to quaff Big Rock is that the stock trades seemingly by appointment. Some days there are zero transactions. However, people who procure shares could be healthily rewarded. If a quarter or two of good results are recorded, the stock volume will likely increase handily.

A decade ago, the daily trading volume was about five times what it is now. Insiders are hopeful as they have been buying and currently own about 35 per cent of the enterprise. It is doubtful they will see fat dividends like back in 2014 when the corporation paid a quarterly of 20 cents.

Early numbers show that alcohol sales have risen steadily since people have been corralled at home because of COVID-19. Perhaps the stock price will rally sooner rather than later. Having paid $4.02, the initial sell target was set at $12.44. It currently trades at $3.80.

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Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter

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