Interactive Investor

ii view: Fevertree optimistic about the year ahead

Shares in this premium soft drinks maker fell 62% in 2022 but have added over 25% this year. Buy, sell, or hold?

12th September 2023 11:21

by Keith Bowman from interactive investor

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First-half results to 30 June

  • Revenue up 9% to £175.6 million
  • Adjusted profit down 54% to £10.2 million
  • Net cash down 24% to £76 million
  • Interim dividend up 2% to 5.74p per share

Guidance:

  • Now expects full-year adjust profit of between £30 million and £36 million, down from a previous £36 million to £42 million range
  • Expects improved adjusted profit margin for full-year 2024 of 15%

Chief executive Tim Warrillow said: 

“Whilst the vagaries of the British summer weather have impacted sales since period end, contributing to our revised guidance for the full year, the Group still expects to deliver good growth in the reminder of 2023. 

“Looking ahead to 2024, with a stronger global market position than ever before, a broader product portfolio and our confidence in delivering significant margin improvement, the Group is well set up for strong, profitable growth going forward."  

ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today downgraded its profit hopes for 2023 given factors such as the disappointing UK summer, but raised its 2024 expectations given easing cost headwinds and management initiatives. 

Adjusted profit for the current full-year 2023 is now expected to be around 15% lower than its previous forecasts at £30-£36 million. However, the adjusted profit margin for 2024 is now forecast to come in at 15%, ahead of City forecasts of 13.6%. 

Shares in the company - the fourth largest on the AIM market - initially fell and then recovered to a marginal gain in UK trading having come into this latest news up by around a quarter year-to-date. That compares to a gain of a tenth for rival Britvic (LSE:BVIC) in 2023. The FTSE AIM All Share index is down 10%. 

Fevertree actions including a retendering of its bottled glass supplies to potentially reduce costs, and lower freight fees are expected to feed into the improved profit outlook for the full-year 2024.

Both revenue and adjusted profit for the first half to the end of June 2023 missed City forecasts, hindered by factors including a one-off cost item in relation to a US production issue. 

Nonetheless, US sales grew 40% during the period, overtaking the UK as its biggest single country revenue contributor, while sales in the UK achieved their highest ever in terms of market share value.

The interim dividend is up 2% year-over-year to 5.74p per share. 

ii view:

Started in 2004, Fevertree products including tonics, ginger ales, ginger beer, cola, sodas, and lemonades are now sold in more than 75 countries. Customers include so-called on-trade outlets like hotels, restaurants, bars and cafes as well as supermarkets and off-licenses, or off-trade retailers. It breaks major markets into the UK, US, Europe, and the Rest of the World (ROW), with sales relatively evenly divided across the first three and ROW accounting for around a tenth of revenues.  

For investors, factors outside of management’s control such as the UK weather and its impact on demand should not be overlooked. Costs such as glass bottles and the energy required to make them remain elevated, US production difficulties and the switch to a new distributor in Australia have created exceptional costs, while the historic dividend yield of around 1.2% compares to over 3% at Britvic. 

On the upside, sales except for ROW all rose during this latest period. Management initiatives to reduce costs are being pursued, net cash as opposed to debt is held, while product innovation continues to be pushed including new cocktail mixers. 

For now, and while some caution still looks sensible, long-term growth potential is likely to leave existing fans of the shares in optimistic mood. 

Positives: 

  • Diversified geographical sales
  • Strong brand 

Negatives:

  • Elevated cost headwinds
  • Uncertain economic outlook

The average rating of stock market analysts:

Hold

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