Erikka Askeland: Punk rocks the City, but if you like your beer it may well pay

Published on Thursday 5 November 2009 20:34

YOU may be surprised to hear it, but being a business journalist in the pub does not always make you the most called-upon life of the party.

So I was delighted to be asked by a colleague, in the pub, whether I thought Fraserburgh-based beer-maker BrewDog, and its cheeky "Equity for Punks" scheme, was a good investment.

The deal is this: for 230 you can buy one of 10,000 shares on offer. This 2.3 million the directors hope to raise will represent a 9 per cent share of the company. Each 230 "B" share will thus give the buyer a 0.000009 per cent stake in the business. Talk about small shareholding.

So what do you get for your investment? Well, the hard words in the small print point out there is no dividend or chance of selling your share until 2012. But you do get a 20 per cent discount on beer you buy on the website. Fancy drinking your profits for a few years? Then maybe this deal is for you.

Sceptics point out the share issue gives the company a valuation of about 25m, which for a company that made 85,000 profit on 790,000 turnover last year may seem, literally, a bit rich. Much of what they operate, too, is not owned by the company, but is rented or leased, including some of their brew kit and their headquarters in Fraserburgh. Even as early as last June, when veteran drink industry boffins Keith Greggor and Tony Folgio bought a 12.5 per cent share in BrewDog, the company was valued at 4.8m.

So what has happened in the past few months to bring the value of the company up fivefold?

This is where the dark art of company valuation is at its murkiest, leading unaccustomed money-men down philosophical pathways, pondering, "what is value?".

BrewDog says the number is justified – since June they have doubled capacity and this year they are on track to double income. The company has bought a bar in Aberdeen and the shares include a bit of that too.

In Greggor and Folgio they have recruited some drinks industry hotshots with solid track records of pushing new brands worldwide. Ever seen Skyy Vodka behind a bar? Credit those two. Plus, if you spend 30 a month on BrewDog you will have made your entire investment back in three years.

But private issues such as this raise questions. Why not raise funds in a more traditional – and better regulated – manner from the banks, or list on the Alternative Investment Market? Share issues on the main market or Aim give investors a cushion of regulation that doesn't apply to private investors. It is caveat emptor with added caveats.

Professional stockbrokers sniff at it. One dismissed it as "amusing, but not an investment opportunity" and "wouldn't touch it with a barge pole".

It may be shocking to admit, but this attitude may be fuelled by a fraternal desire to maintain the current order – at a total cost of 157,610, this fundraising cuts out the host of City middle men who fund their Porsches and mistresses on fat bonuses.

But the professional warning also hits a mark – there is no guarantee that, come 2012, shareholders will be able to sell. Let alone make a profit. The only other way to get your money back would be a trade sale, and there are no certainties that a buyer will pay anything like 25m for BrewDog.

But ask anyone who used to have so-called blue-chip stocks in UK banks about certainties.

So far, there are 900 "punk" investors – about halfway to the bottom threshold of 500,000.

For most of their potential shareholders, it may be their first stab at investing in shares – but they will have understood equity by watching Dragon's Den.

And young(ish) men love BrewDog, which is no surprise as the founders are themselves – both are still well under 30 – their own core demographic. Their marketing strategy – of which Equity for Punks can be counted as one – is audacious and effective. They launched a beer with an 18.2 per cent ABV at the height of public paroxysm over binge drinking. And then, when politicians and industry bodies lambasted them for promoting irresponsible drinking, they released a 1.1 per cent expression called "Nanny State".

The opportunity to buy shares closes on 8 January, making the BrewDog boys appear even more clever – what else do you buy the beer-loving chap who has everything for Christmas?