ii view: Fevertree fails to sparkle despite decent six months

First-half results to 30 June

• Revenue up 7% to £184 million
• Adjusted profit (EBITDA) up 9% to £20.1 million
• Cash held of £68 million, down from £130 million a year ago
• Interim dividend up 2% to 6.09p per share

Chief executive Tim Warrillow said:

“We’ve made strong progress in the first half of the year. We have continued to trade well through the summer and are confident in delivering market expectations for the full year.”

• Invest with ii: Top UK Shares | Share Tips & Ideas | Open a Trading Account

ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today flagged a return to UK sales growth and maintained full year sales and profit expectations.  

A 3% increase in first-half UK sales to £49.5 million contrasted with a fall of 2% over the last financial year. Group-wide currency adjusted revenues up 7% to £184 million and a 0.2% improvement in the adjusted (EBITDA) profit margin to 10.9% pushed profits on the same basis up 9% to £20.1 million.

Shares in the AIM company fell 6% in UK trading having come into these latest results up 5% over the last year. Spirits and Guinness maker Diageo (LSE:DGE) has fallen by 17% during that time. The FTSE All Share index is up almost 15% over the last year.

Fevertree flagged well-hedged glass and aluminium costs going forward, important cost centres given its use of bottles and cans and against a backdrop of soaring energy prices due to the Middle East War.

The group’s unfolding partnership with fellow drinks maker Molson Coors Beverage Co Shs -B- Non-Voting (NYSE:TAP) and the launch of a first national US marketing campaign back in April, helped first-half currency adjusted sales in the country rise 11% to £66.9 million.

Sales on the same basis for Europe climbed 10% to £49.6 million with those for the rest of the world rising 5% to £17.6 million.

A 2% increase in the interim dividend to 6.09p per share, payable to eligible shareholders on 16 October, accompanies an ongoing £60 million share buyback programme.

Fevertree stressed its ongoing push for product diversity, with items beyond tonics now accounting for 47% of group sales and up from 39% just three years ago.

The City is currently forecasting 2026 annual sales of around £405 million, up from last year’s £375 million, and adjusted profits of around £50 million, potentially up from last year’s £42.4 million.

A full-year trading update is likely to be announced late January.

ii view:

Begun in 2005, Fevertree today distributes its drinks to over 95 countries globally. The group sells a range of carbonated mixers to hotels, restaurants, bars and cafes, known as ‘on trade’, as well as to selected retailers, or ‘off trade’.

For investors, the importance of the weather in aiding or hindering sales cannot be overlooked. Competition from the likes of Gruppo Campari and its Crodino product, is not to be forgotten. Exports to the US remain subject to Trump trade tariffs until partner Molson Corrs can begin production in the country itself, while costs broadly for drink producers now include the UK government’s Extended Producer Responsibility levy in relation to bottle disposal, and related processing costs for local councils.

• Shares for the future: still my third-highest-scoring stock
• Insider: bosses slash stakes in AIM’s biggest company
• Jet2 joins AIM market exodus

On the upside, the group’s partnership with Molson is extending distribution across the group’s major US marketplace. Product innovation is fuelling sales away from tonics. A broad consumer trend to reduce alcohol intake, and potentially aided via increased soft beverage mixers, warrants consideration, while scope for further geographical expansion exists.

In all, consumer headwinds and elevated costs for the UK hospitality sector and Fevertree’s on-trade business generate some scope for caution. That said, an unfolding US partnership and consensus analyst fair value estimate above 925p per share will likely encourage the optimists.

Positives:

• Diversified geographical sales
• US partnership

Negatives:

• Battling US trade tariffs
• Potential currency headwinds

The average rating of stock market analysts:

Hold