Interactive Investor

ii view: Fevertree reiterates 2024 optimism

Growing sales in the US and Europe and with management firmly focused on costs. Buy, sell, or hold?

25th January 2024 16:16

Keith Bowman from interactive investor

Full-year 2023 trading update to 31 December

  • Revenue up 6% to £364 million

Guidance:

  • Expects adjusted (EBITDA) full year 2023 profit of £30 million
  • Expects full year 2024 revenue growth of 8%
  • Continues to expect an improved adjusted profit margin for full-year 2024 of 15%

Chief executive Tim Warrillow said: The Fevertree brand has performed well in 2023, growing our market share in all our key markets, despite a challenging macroeconomic environment. 

“Importantly, we have driven a significant increase in our EBITDA margin in the second half of the year and are confident that the operational efficiencies we have implemented, alongside a reduction in inflationary cost pressures, will drive a doubling of EBITDA in 2024 and provide a strong platform for profitable growth going forward.

ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today reiterated its hopes for an improved profit margin in the year ahead as it underlined both market share gains and an improving operational performance. 

Factors including new glass contracts with fully hedged energy pricing and lower transatlantic freight rates are expected to help push its adjusted full year 2024 profit margin to around 15%, up from a near 6% as of its half-year 2023 results. 

Shares for the AIM-listed company initially fell around 4% but then later recovered to a 5% gain, potentially aided by lunchtime news of a 45,000-share purchase by non-executive chair Domenic De Lorenzo. Fevertree shares came into this latest news little changed during 2023, while shares for rival Britvic (LSE:BVIC) gained 8%. 

Fevertree 2023 sales rose 6% compared to 2022 to £364 million, led by a near one-quarter gain in US sales to £117 million and a 6% improvement in European sales to £105 million. UK sales retreated 1% year-over-year to £115 million with sales for the rest of the world declining 14% to £27 million. 

Hindered by factors including cost headwinds and a disappointing UK summer, adjusted full year 2023 profit is expected by management to come in at the bottom end of its previous £30-£36 million estimate, down from 2022’s £39.7 million.

Full year 2023 results are scheduled for 26 March. 

ii view:

Started by Charles Rolls and Tim Warrillow in 2004, Fevertree products today include tonics, ginger ales, ginger beer, cola, sodas and lemonades. Located in more than 85 countries, its customers include hotels, restaurants, bars and cafes or on-trade outlets, as well as supermarkets and off-licences or off-trade retailers. 

For investors, factors outside management’s control such as the UK weather and its impact on demand cannot be ignored. Overseas sales regularly bring currency headwinds. A historic and forecast future dividend yield of about 1.5% compares to around 3.5% at rival Britvic, while an estimated price earnings (PE) ratio above the three-year average suggests the shares are not obviously cheap.  

On the upside, management initiatives to reduce costs are being pursued. Market share gains continue to be made. Net cash of £75 million as opposed to debt was held as of its 2023 interim results, while product innovation persists with its new Espresso Martini mixer proving popular at Christmas. 

On balance, and while a good dose of caution remains sensible, a consensus analyst estimate of fair value sat at over £12 per share looks to give grounds for existing investors to stay patient. 

Positives: 

  • Diversified geographical sales
  • Strong brand 

Negatives:

  • Pressured consumer spending
  • Potential currency headwinds

The average rating of stock market analysts:

Hold

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