Interactive Investor

DIY gin & tonics boost Fevertree pandemic revenues

28th January 2021 16:03

Graeme Evans from interactive investor


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US sales also help popular stock, which rose 6% on positive revenue news.


Fevertree Drinks (LSE:FEVR) was the toast of fund manager Nick Train and many retail investors today after the tonics firm showed that pub closures have not diminished its optimism.

The popular AIM-traded stock rose 6% or 150p to 2,455p as it disclosed in an update that revenues for last year will be around £252 million, which is 3% lower than the previous year but still better than guidance given in September.

While the Covid-19 pandemic has thrown up many challenges, chiefly the ongoing closure of on-trade sites, it has also accelerated the trend of long mixed drinks being enjoyed at home.

This appetite for gin and tonics and other cocktails during periods of lockdown meant Fevertree's off-trade sales in the UK jumped by 20% compared with 2019, which chief executive Tim Warrillow said highlighted the strength of the Fevertree brand.

Shares have rebounded by 175% since March and are up by 51% in a year, although they remain a long way short of the 3,863p seen in 2018 at the peak of the Fevertree stock market boom. At one point Fevertree was valued at more than £4 billion, with a whopping forward price/earnings multiple of more than 70x.

Nick Train added Fevertree to the LF Lindsell Train UK Equity fund for the first time in 2020, having been “very lucky” to find a depressed point for buying the shares. It now represents a 2% chunk of the £6.5 billion fund, with Train intending to buy more in due course.

The AIM stock is also recommended as a ‘buy’ by brokers Investec Securities and Numis after they reacted positively to today's trading update.

Despite shares being on 41.7x earnings, Numis analyst Damian McNeela retains a price target of 2,800p, adding: “The strength of this performance provides us with confidence for the continued success of the business as markets return to normal.”

And even though the new financial year has started with further lockdown restrictions in the UK and elsewhere, Investec's Nicola Mallard today lifted her revenues forecast by £14 million to £290 million. Her earnings per share estimate sees a more modest uplift of 2.5% to 43.5p, while Investec has added 100p to its price target at 2,700p.

One factor driving investor enthusiasm has been trading in the US, where Fevertree continues to make inroads in a relatively new marketplace. Revenues were 23% higher at £58.5 million in 2020 after the pandemic led to a sustained shift towards at-home consumption.

It has just added a new bottling partner on the West Coast, which should reduce transport and logistics costs and provide greater agility to respond to the growing demand.

Warrillow said: “While our performance across the off-trade in the UK and Europe has been very encouraging, special mention must be made of our performance in the US, Australia and Canada, where we have seen outstanding growth in the past 12 months underlining the global opportunity still ahead for the brand.”

Elsewhere in the drinks industry, fellow soft drinks firm Britvic (LSE:BVIC) today reported a 4.1% decline in UK revenues for the quarter to the end of December as pre-Christmas pub closures were offset by families spending more on brands including Tango and Fruit Shoot.

This saw strong at-home sales growth of 11.9%, offset by a decline of 32.5% in the out-of-home category. The Robinsons fruit squash and J20 bottled juice maker anticipates a significant impact on its performance from the latest lockdown, with profits growth dependent on the easing of restrictions.

It will continue to be disciplined in the management of cash and discretionary spend but intends to rebuild brand investment over the second half of its financial year, starting in April.

Chief executive Simon Litherland said: “Britvic is a fantastic business operating in a highly resilient category. We are confident that we will continue to successfully navigate the pandemic, emerge stronger, and be at the forefront of the recovery when it comes."

The FTSE 250-listed shares held firm at 760p, having been at 600p in March.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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