ii view: Fevertree punished for weaker growth forecasts

A recovery in pub, or on-trade, sales is expected later in the year, but that might be too late. We assess prospects. 

Full-year results to 31 December 2021  

Chief executive Tim Warrillow said:

"Although 2020 presented many unforeseen challenges, our resilient performance highlights the strength of the business and the Fever-Tree brand which is testament to the proactive and entrepreneurial way our team and our partners responded.

“Our performance in the Off-Trade was especially strong, exceeding our expectations across all our regions. Numerous periods of lockdown during the year encouraged increased consumer interest in premium spirits and stimulated excitement about mixing drinks at home, attracting more households and new consumers to the Fever-Tree brand than ever before. Consequently, we have increased our penetration in the UK, driven value share gains in the US, and Europe, and gained real traction in Canada and Australia.”

ii round-up:

Premium tonics maker Fevertree (LSE:FEVR) today flagged expectation for sales growth of up to 16% over 2021, below current City forecasts of around 18%.

The profit margin for the year ahead is expected to remain broadly the same as 2020, also below analysts’ hopes and leaving existing profit forecasts subject to downgrades.

Fevertree shares fell by more than 10% in UK trading, having gained by more than 170% since pandemic lows back in March last year. Shares for soft drinks maker Britvic (LSE:BVIC) are up closer to 40% over that time, as is spirits and Guinness maker Diageo (LSE:DGE). 

Management expectations are for a recovery in pub and bar, or on-trade, sales during the second half as opposed to the first half of 2021. 

Lockdown-hit results for 2020 broadly matched City expectations, with growth in home drinking, or off-trade sales, largely making up for lost bar and restaurant sales. 

Full-year revenues for 2020 fell 3% overall to £252 million, with sales in the UK down 22% to £103 million and sales in the US up 23% to £59 million. Buoyant sales in both Australia and Canada helped push revenues for its Rest of the World region up 58% to £25 million, while sales in the remaining European region proved flat at £65 million. 

A fall in the gross profit margin to 46.2% from 53.5% left gross profit and earnings per share down 12% and 29% respectively at £116.3 million and 35.76p per share.

A final dividend of 10.27p per share made for a total 2020 payment of 15.68p per share, up 4% on 2019.   

ii view:

Launched in 2005, Fevertree makes and sells premium carbonated mixers for alcoholic spirits to over 75 countries. It supplies a range of soft drink mixers to hotels, restaurants, bars and cafes or on-trade outlets as well as supermarkets and off-licenses or off-trade. Its drinks include tonics, ginger ales, ginger beer, cola, sodas and lemonades.

Already selling its drinks in the US, 2020 saw it begin local production in the country for the first time. It also launched new products over the year including a premium soda range in the UK targeting the significant vodka category, and pink grapefruit in the US targeting the fast-growing tequila market. 

For investors, an estimated one-year price/earnings (PE) ratio comfortably above the three-year average suggests the shares are not obviously cheap. An analysts’ fair price estimate at close to £24 per share, and below the current share price, also suggests much the same. That said, the group’s performance over 2020 does at least highlight some resilience, while net cash held and continued growth in the dividend should not be overlooked. In all, while a strong recovery in the share price since pandemic lows may for now leave the shares up with events, longer term fans of the company will likely remain optimistic. 

Positives: 

• Diversified geographical sales
• Six years of consecutive yearly growth in the dividend 

Negatives:

• High valuation
• Ongoing pandemic uncertainty

The average rating of stock market analysts:

Hold