Will Expand US Distribution And Acquire Energy Drink Brand

Key Takeaways

• Expansion in key U.S. regions, strategic retail partnerships, and new product offerings are set to drive significant revenue growth for Splash Beverage Group.
  
• Investment in high-margin businesses like Qplash and energy drinks is likely to enhance cash flow and boost operational efficiency.
  
• Liquidity challenges and reliance on capital raises threaten financial stability, with legal disputes and unpredictable funding further risking revenue and growth plans.

Catalysts

Engages in the manufacturing, distribution, marketing, and sale of various beverages in the United States.

• The expansion of the distribution network in key U.S. regions, such as the Pacific Northwest, Northeast, and Southwest territories, is expected to increase future revenues by broadening the market reach of Splash Beverage Group's products.
  
• The restart and ramp-up of the Qplash resale business, which features short cash conversion cycles and high gross margins, are likely to significantly enhance cash flow and overall gross margins going forward.
  
• Authorized retail arrangements, like the one with Circle K, and new product offerings, such as the Chispo tequila brand, are anticipated to contribute to revenue growth as they increase product availability in prominent retail locations.
  
• The strategic acquisition of an energy drink company is anticipated to boost revenues and operational efficiencies significantly due to the high-growth potential in the energy drinks market segment and attractive profit margins.
  
• Recent capital raises and ongoing efforts to engage additional institutional investors, despite liquidity challenges, are poised to improve working capital and reduce financing costs, potentially leading to improved net margins.

Splash Beverage Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Splash Beverage Group's revenue will grow by 60.1% annually over the next 3 years.
• Analysts are not forecasting that Splash Beverage Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Splash Beverage Group's profit margin will increase from -331.0% to the average US Beverage industry of 11.5% in 3 years.
• If Splash Beverage Group's profit margin were to converge on the industry average, you could expect earnings to reach $3.0 million (and earnings per share of $2.96) by about May 2028, up from $-20.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.5x on those 2028 earnings, up from -0.5x today. This future PE is lower than the current PE for the US Beverage industry at 25.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Splash Beverage Group Future Earnings Per Share Growth

Risks

• The company is experiencing ongoing liquidity challenges, which have been impacting inventory and sales, and this financial strain could continue to affect net margins and overall financial stability if not resolved soon.
  
• There is a legal dispute with ABG TapouT, which presents a risk of unforeseen legal costs and potential liabilities, potentially affecting the company's earnings.
  
• The timing of funding inflows is unpredictable, causing interruptions in inventory management, which could ultimately lead to reduced revenue due to missed sales opportunities or inability to meet demand.
  
• The net sales in Q3 2024 dropped compared to the previous quarter due to limited inventory caused by liquidity issues, negatively affecting revenue.
  
• The company remains reliant on successful capital raises to fund acquisitions and operational costs, and any delays or failures in securing funding could hamper planned growth initiatives and adversely impact profitability.

Valuation

• The analysts have a consensus price target of $40.0 for Splash Beverage Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $25.7 million, earnings will come to $3.0 million, and it would be trading on a PE ratio of 16.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of $6.15, the analyst price target of $40.0 is 84.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.