Good Drinks Australia, owner of Gage Roads Brew Co. has proposed a share consolidation to change market perceptions about its share price.
Good Drinks (ASX:GDA) currently has 1.3 billion shares on issue, which it admitted was a “considerable number” for a company its size.
The drinks company said that the consolidation, if approved, will see 10 existing shares converted into one share which it says is a “more appropriate and effective capital structure for the Company”.
Good Drinks said that the large number of shares currently on issue means that there is an “incorrect market perception” as some investors may perceive lower share prices as an indicator of performance or value.
The ASX-listed company said the number of shares made shareholders vulnerable to speculative- day-to-day trading, and that there was limited appeal to quality, long-term institutional investors, equity funds and lending institutions.
If approved, the consolidation will reduce the number of shares in Good Drinks to just over 128 million.
The consolidation will apply equally to all shareholders so they will be reduced in relation to the total number of shares and therefore should have “no material effect” on the percentage interest of each individual shareholder, said Good Drinks.
The company’s share consolidation plan will be decided on at its AGM on 18th November 2021.
According to analysts in recent years, Gage Roads is “undervalued”. It currently has a market capitalisation of $110.4 million, with share price currently sat at $0.088 per share.
It has also been suggested that the brand is following a similar trajectory to Little Creatures and is an “eventual takeover target”.
In its most recent financial results, the ASX-listed company reported revenues of $54.4 million, up from $36.8 million the year before. EBITDA reached $10.7 million for the year.
Inflated share numbers have been an issue for listed businesses, which tend to issue a large number of shares during every capital raise, diluting the shareholding of existing shareholders every time.
Good Drinks has used its capital raising to invest in bricks-and-mortar sites, including the latest acquisition of a site for its Matso’s brand on the Sunshine Coast in addition to its major Gage Roads-branded Fremantle development and plans for other east coast venues.