With domestic and overseas distribution of its premium drinks brands building, a return to breakeven then profitability is approaching at alcoholic drinks minnow Distil (DIS:AIM).

Sales are bubbling higher at the supplier of high-end vodka, spiced rum and gin. Investors should get in on the story ahead of a fourth quarter update in April.

Spicey potential

Under executive chairman Don Goulding, a former senior manager at Diageo (DGE), loss-making Distil has been reinvigorated in recent years and is held in well-followed fund manager Gervais Williams’ Miton UK Microcap Trust (MINI).

The business has been simplified to focus solely on selling owned brands with global potential including RedLeg Spiced Rum, Blackwoods Gin and Vodka, the ‘outrageously smooth’ Blavod Black Vodka, Jago’s Cream Liqueur and Diva vodka.

In a post-festive period update (17 Jan), Goulding said results for the year to 31 March 2017 would beat market expectations following a buoyant third quarter including Christmas. Sales shot 71% higher and volumes grew by 56% as Distil ramped up marketing behind brands which are attracting an ever-wider consumer following.

Encouragingly, sales are advancing across all channels. Incremental supermarket listings with chains including Tesco (TSCO), Sainsbury’s (SBRY) and Morrisons (MRW) are driving growth, while sales are also building with bars, pubs and via the online retail channel.

Sterling tailwind

Furthermore, the weak pound is providing an export tailwind, international distributors taking advantage of lower buying costs. On top of this, Blackwoods is riding the international boom in premium gin.

RedLeg Spiced Rum, now the most prominent brand, takes its name from the RedLeg Hermit Crab native to the Caribbean and famed for its bright legs. It is apparently making ‘very strong progress on all fronts’.

Approved for sale by the US Alcohol and Tobacco Tax and Trade Bureau (TTB) last year, the brand is now being launched in the vast US market, where Blavod Black Vodka has been successfully reintroduced.

Following the third quarter update, Progressive Equity Research raised its revenue forecasts for the next three years and said ‘a strong Q4 performance could potentially see Distil achieve breakeven’.

Progressive upgraded its estimate for revenue in the current financial year by 9% to £1.65m, reducing the forecast pre-tax loss by two thirds to £40,000. For March 2018 and March 2019, Progressive forecasts pre-tax profit of £100,000 and £300,000, nudged up from £59,000 and £265,000 respectively before the festive update, as the top line froths higher to £2.1m then £2.5m. (JC)

Distil (DIS:AIM) 146p

Stop loss: 10.02

Market Value: £7.3m

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