ii view: Fevertree shares rocket as European sales double

Sales and profits are up, but so are logistical costs for this drink mixers maker. We assess prospects. 

First-half results to 30 June 2021  

• Revenue up 36% to £142 million
• Pre-tax profit up 17% to £25.3 million
• Gross margin down 2.7% to 44.1%
• Interim dividend up 2% to 5.52p per share
• Net cash down 3% to £133 million

Guidance: 

• No change

Chief executive Tim Warrillow said:

"I am pleased to report an excellent sales performance for the first half of the year. Our ambition and confidence in the global opportunity continues to grow.

“We believe the Group is emerging from the pandemic in a very strong position. Throughout the last 18 months we have maintained our long-term focus and therefore continued to invest in our team, our innovation and the brand, which was enabled by the financial strength and operational agility of the business. While some material impacts of the pandemic remain, the business is increasingly well placed to deliver our plans for long-term growth.”

ii round-up:

Premium drink mixers company Fevertree (LSE:FEVR) today reported first-half results in-line with its prior guidance, as sales climbed by just over a third following a reopening of bars and restaurants from 2020 pandemic lockdowns. 

Sales in Europe doubled to £41.3 million as hospitality outlets restocked its products, US demand continued to expand and home drinking, or off-trade sales, remain above pre-Covid levels. The AIM-listed soft beverage maker reiterated its July guidance for full-year revenues of between £295 million and £304 million, compared to 2020’s Covid hit £252 million.

Fevertree shares rose by over 6% in UK trading, having gained by more than 140% since pandemic market lows in March 2020. Shares for Britvic (LSE:BVIC) are up close to 55% over that time, similar to sprits and Guinness maker Diageo (LSE:DGE).

Fevertree pre-tax profit grew 17% to £25.3 million, despite some increased logistical cost pressures, aiding a 2% increase in the interim dividend to 5.52p per share. Shortages of HGV drivers and higher freight charges to ship products to the US both fed into elevated costs.

Gross profit margin for the half-year to the end of June fell by 2.7% to 44.1% given the heighten costs, although management remains very confident of continued strong sales momentum as it continues to invest in order to capitalise on longer-term structural growth opportunities.

UK sales during the period rose by 4% to £50.3 million while US sales gained by 32% to £36.2 million and Rest of the World demand grew by 73% to £14 million. The 2% improvement in the dividend follows a 4% rise in the total 2020 payment to 15.68p per share. 

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.

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 of £22.47 per share is also close to the current share price of just under £22. 

That said, structural trends, including the growing interest in premium mixers and spirits, and the popularity of long mixed drinks, should not be forgotten. Expansion in markets such as the US is ongoing, while the dividend payment, although not greatly enticing at below 1%, has been increased consecutively over the last six years. In all, while a strong recovery in the share price since pandemic lows may for now leave the shares up with events, the prospect of growth over the longer term will fuel optimism among the share's large fan base.

Positives: 

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

Negatives:

• High valuation
• Rising costs

The average rating of stock market analysts:

Hold