Sunday, 18 May 2014

Samuel Adams John Paulsons first big win

Boston Beer Company (SAM) is the largest craft brewer in the US selling 3.4 million barrels of beer last year. SAM has nearly 100 distinctive styles of beer for every drinker and has won more awards in beer tasting competitions in the past five years than any other brewer in the world. The winners include such favourites as twisted tea with 5% alcohol and Angry Orchard a hard cider. See some of their limited edition beers below. SAM estimates that the craft beer category grew 15% in the past year while the total beer category was down 1%. The market potential for SAM is massive with just 1.3% market share in a beer industry where Anheuser-Bush and Miller Coors have 75% share. In our opinion SAM is the best way to invest in the growing craft beer market.

For the love of beer
According to SAM craft beers account for almost 8% of the American better beer consumption which includes craft, imports and domestic specialty. Over the past couple of years the industry has seen double digit growth. In the past year SAM has introduced the Sam Can tapping into further growth as according to IBISWorld cans make up roughly half of overall beer sales.

According to the beer institute (yes it does exist) this growth has inspired many new entrants with 3,700 active permitted breweries in 2013 up from 2,751 in 2012. Even the big boys are getting in on the act as SAM's major craft competitor is Craft Brew Alliance with brands such as Redhook, Widmer Brothers and Kona Brewing AnBev owns nearly 32% of the company. Craft Brew has a market value of $211 million versus SAM's $2.9 billion with AnBev's backing it is one to watch.

Always signs off with a beer after an interview
The CEO and founder Jim Koch has had over 21,000 beers according to a CNBC interview, averaging over 2 beers a day. In 1995 Koch famously included coupons in their six packs to let customers take part in their IPO. He wanted investors who were also fans of the products. Koch is a legend of the business with interviews on CNBC always signing off with a beer no matter if the interview is in the afternoon or the morning. A cheap way for free advertising.

How to drink all night without getting drunk
In an interview with Esquire magazine article Jim lets us know one of his best kept secrets. How to drink all night without getting drunk. The secret yeast. Apparently swallowing Fleischmann's dry yeast one teaspoon per beer right before you have a drink. The yeast breaks down the alcohol molecules before it gets in your bloodstream mitigating some of the effects of alcohol. Though some might say whats the point of drinking without getting drunk.

John Paulson and Sam Adams
Jim Koch the founder has a connection with John Paulson the hedge fund titan. The two worked together at Boston Consulting Group with John Paulson investing $25,000 in SAM in its first year which later earned Paulson several million dollars.

Depletion sales growth was an amazing 34% in the last reported quarter as SAM struggled to keep up with demand always a good problem to have. The stock is not cheap but just like craft beers you have to pay up for better quality.


Disclosure: Decisive does not have a position in Samuel Adams (SAM) stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.