Interactive Investor

ii view: Fevertree upbeat as contemplates key summer period

Shares in this innovative maker of premium soft drinks have fallen by more than 20% over the last year. Buy, sell, or hold?

6th June 2024 11:26

by Keith Bowman from interactive investor

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AGM trading update

ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today maintained its expectations for year ahead growth in sales and profits as it flagged ongoing gains in market share. 

Sales for the year-to-date have grown across all geographical regions ahead of the key summer trading period and a range of marketing initiatives and activations. 

Shares in AIM's eighth largest company rose 2% in UK trading having come into this latest news down by just over a fifth over the past year. That’s similar to alcoholic beverage maker Diageo (LSE:DGE) and way worse than the one-tenth increase for rival soft drinks maker Britvic (LSE:BVIC). The FTSE AIM 50 index is up almost 3% over the last year. 

Both previous City and Fevertree estimates point to an expected one-tenth improvement in sales for the year ahead compared to 2023. Fevertree’s profit margin is forecast to improve by around 6% year-over-year to a potential 15%, aided by factors including new energy hedged glass bottle contracts and lower Trans-Atlantic freight rates.

Market share gains in 2024 so far had been helped by product innovation catering towards the growth of rum, vodka, and other spirit categories, with relatively new cocktail mixers such as Mojito and Margarit also assisting.

In the US, its biggest regional sales generator in 2023, growth in tonic and ginger beer categories had extended its number one position in retail related carbonated mixer sales.

In Europe, demand for ginger beer and pink grapefruit products had aided sales across Italy, France and Denmark, while expected strong growth for the Rest of the World (ROW) continues to be fuelled by its new subsidiary business in Australia. 

First-half results are likely to be announced mid-September.   

ii view:

Started by Charles Rolls and Tim Warrillow in 2004, Fevertree generated sales of £364 million in 2023. The US overtook the UK, accounting for 32% of sales compared to 31% for its home market, with Europe coming in at 29& and ROW the balance of close to 8%. Present in more than 85 countries, products today include tonics, ginger ales, ginger beer, cola, sodas, and lemonades.

For investors, the weather and its impact on demand deserves high consideration. Costs and the importance of energy prices cannot be overlooked. Overseas sales regularly bring currency headwinds, while a forecast future dividend yield of around 1.6% compares to 3.3% at Britvic.

On the upside, management initiatives to reduce costs are ongoing. Product innovation is assisting with non-tonic sales now at around 40% compared to 25% in 2019. Room to grow overseas sales including markets such as Australia persists, while net cash held as of its 31 December 2023 year-end gives scope for bolt-on acquisitions should the right opportunity arise.   

On balance, and despite room for caution, hoped-for year ahead growth and a consensus analyst estimate fair value above £12 per share looks to give grounds for longer-term optimism. 

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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