Interactive Investor

Insider: director spends over £400k on AIM giant's shares

A trading update dumped shares back below a significant level, which this chief thinks is wholly unfair given impressive growth in the US. There's also buying at a small-cap following a profits warning.

29th January 2024 08:39

Graeme Evans from interactive investor

A flurry of buy orders after shares in Fevertree Drinks (LSE:FEVR) last week dipped back below £10 included one worth £438,000 by the chair of the AIM-listed company.

The purchase by long-serving board member Domenic De Lorenzo took place at 973.8p, shortly after the City’s initially sour reaction to the posh mixer firm’s year-end trading update.

By the end of Thursday’s session, the shares had rebounded 10% as investors turned their focus to strong levels of US growth and the prospect of further margin recovery in 2024.

The shares closed the week at 1,066p, which compares with a level above 1,400p in May and the 1,500p target price of analysts at Investec Securities.

Last week’s update showed Fevertree grew 2023 revenue by about 6% to £364 million, with the US now the company’s biggest region after a 22% jump to £117 million.

UK sales were a better-than-expected 1% lower at £114.8 million as strong Christmas trade in bars and restaurants offset the inclement summer weather.

The biggest setback was in Europe, where sales growth of 4% was below the City’s hopes for a mid-teens improvement as the region’s economic struggles slowed demand.

Fevertree’s £30 million forecast for underlying earnings compared with earlier guidance of £30-£36 million, but Investec said this still meant an 8.2% margin in line with its forecasts.

It pointed out that Fevertree had protected the margin despite top-line headwinds and without having to reduce promotional spend.

Investec said: “This bodes well for the recovery expected in 2024, where Fevertree has reiterated its guidance of a 15% earnings margin.”

The company’s guidance for £60 million of underlying earnings in the current year contrasts with its downgrade in September’s interim results, when the poor summer weather and concerns over higher interest rates triggered a fall in shares towards 963p.

When former SABMiller executive De Lorenzo joined the board in 2018 the company was the toast of retail investors after a spectacular run for shares to above 3,500p. At one point it traded on 70 times forecast earnings for a market value of £4 billion.

The momentum reflected the benefits of a largely outsourced business model, which gave Fevertree the flexibility to pursue opportunities in new markets including the US. However, this also left it more exposed to significant cost headwinds, such as the recent spike in glass prices and labour shortage pressures on America’s east coast.

Now valued at £1.2 billion, Fevertree is still one of the biggest companies on the AIM market. It was also AIM’s biggest dividend payer of 2022, with Investec looking for a total of 17p when the company reports annual results on 26 March. The interim award rose 2% to 5.74p. 

Slowdown at Trifast

Three leading directors of Trifast (LSE:TRI) have spent £75,000 in a show of support for the industrial fastenings firm following its profit warning last week.

The FTSE All-Share company lost a fifth of its value as it said the expected recovery of volumes in Asia and in its global distribution sales channel had been delayed further into 2024.

This meant results for the March financial year will be significantly below previous hopes, with revised revenues now about £230 million alongside an adjusted margin near 5%. Last year’s sales were £244.4 million, while the City consensus for this year had been £254 million.

The warning came as a setback for the new leadership of chair Serena Lang and chief executive Iain Percival, who joined the East Sussex-based business in the late summer. Trifast supplies fastenings and components to major global assembly industries, including car manufacturing.

Percival’s appointment followed February's exit of Mark Belton, whose eight years in the role came to an end at the same time as a profit warning caused by Asia destocking.

In last week’s update, the company said the testing conditions had prompted it to accelerate its restructuring plans and strategic review of its global footprint.

It added that its balance sheet was strong, with significant scope to rebuild and invest in the business. “We remain confident in the fundamentals of our business model over the medium-term.”

This optimism was backed up through purchases of around £25,000 each by Lang, Percival and senior non-executive director Clive Watson, who is the former finance boss of Spectris. They did so at prices between 72.2p and 74p, which compares with above 150p in early 2022.

Broker Peel Hunt reiterated its price target of 140p following the warning. It said: “Management is delivering on the strategy and creating a more focused organisation that we believe will be prepared for when market conditions improve.”

Percival is a former chief executive of the packaging division at Essentra while Lang has held senior roles at BP and Invensys. Shares closed last week at 72.9p.

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