Interactive Investor

ii view: positive reaction to Fevertree results sends share price up 10%

22nd March 2023 11:39

by Keith Bowman from interactive investor

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This AIM listed maker of premium drinks suffered a torrid 2022 but is showing signs of recovery. We assess prospects. 

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Full-year results to 31 December

  • Revenue up 11% to £344 million
  • Adjusted profit down 37% to £39.7 million
  • Net cash held of £95.3 million
  • Total dividend for the year up 2% to 16.31p per share

Guidance:

  • Sales and profit estimates for full year 2023 left unchanged

Chief executive Tim Warrillow said: 

“We have seen an encouraging start to 2023 in our key growth markets and are confident of maintaining the Group's momentum in the months ahead. The Fever-Tree brand, as shown by our highest ever combined market share in the UK, and leadership position across many markets, is stronger than it has ever been and we remain committed to investing for the long-term both within our core mixer category but also through our expansion into adjacent categories such as adult soft drinks and cocktail mixers.”

ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today reported profit marginally above its previous estimate as it flagged an ‘encouraging start’ to 2023 across its key growth markets.

Adjusted profit for the full year 2022 fell 37% to £39.7 million as it continued to battle increased costs such as energy to make glass bottles, although that did beat management’s own estimate of £39 million. Sales and profit forecasts for 2023 were left unchanged.

Fevertree shares rose by 10% in UK trading having fallen by close to two-thirds in 2022. Fellow soft drinks maker Britvic (LSE:BVIC) fell by 16% in 2022, while premium spirits maker Diageo (LSE:DGE) retreated by close to 10%. 

Fevertree continues to expect sales to rise 13-18% in 2023 to £390-£405 million, with adjusted profit forecast to come in at £36-£42 million.

The AIM listed company remains focused on initiatives including product price increases to offset elevated costs, and actions to reduce costs such as increasing production within its US market in order to curtail freight fees. 

US sales growth of 23% in2022 to £96 million led the way, followed by growth of 18% for its Rest of the World region to £32 million and a 14% gain in Europe to £101 million. UK sales fell 2% to £116 million.  

US sales are expected to remain robust in 2023, with a return to growth for its home UK market also forecast. 

Net cash of £95.3 million at the year-end helped push a 2% increase in the total dividend for 2022 to 16.31p per share. 

ii view:

Started in 2005, Fevertree products including tonics, ginger ales, ginger beer, cola, sodas, and lemonades are now sold in more than 75 countries. Its customers include so-called 'on-trade' outlets like hotels, restaurants, bars and cafes, as well as 'off-trade' retailers like supermarkets and off-licenses. Its home UK market generates its biggest slug of sales at around a third, with Europe next at just under a third and the US at just over a quarter. 

For investors, the headwind of increased costs remains front and centre on the downside. A cost-of-living crisis for consumers and rising interest rates cannot be forgotten, a historic dividend yield of close to 1.5% compares to 3.4% at Britvic, while an estimated 2024 price/earnings ratio in the region of 30 times remains at a significant premium to the wider European staples sector. 

On the upside, sales growth for each of its overseas regions hit double digits, with a return to growth in its home UK market expected during 2023. Management initiatives to reduce costs are being pursued, the balance sheet shows net cash as opposed to debt, while UK volumes for ginger ale has grown by 80% since 2019. 

Fevertree's terrible 2022 demonstrates that business is vulnerable to a downturn in demand and rising costs, and more cautious investors might prefer to await evidence of sustainable profit growth. However, Fevertree remains a popular share and recent sales growth will be welcome news for its army of fans.

Positives: 

  • Diversified geographical sales
  • Strong brand 

Negatives:

  • Battling cost headwinds
  • Uncertain economic outlook

The average rating of stock market analysts:

Hold

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