Why AIM star Fevertree Drinks neared £40 a share

After another double-digit rally, Fevertree shares are now worth 30 times their IPO price. Graeme Evans explains the latest surge.

For investors still kicking themselves at missing out on AIM phenomenon Fevertree Drinks when it listed at 134p in November 2014, there was good reason to wince today at the sight of yet more "shares fizzing" headlines.

As is the Fevertree norm, the posh tonics firm announced its current financial year will be comfortably ahead of expectations. The AIM stock jumped 15% to as high as 3987p, propelling the company’s market value well beyond £4 billion.

The question for investors - old and new - is whether this remarkable growth story has further to run. Certainly, the UK’s continued love for gin and the opportunities for expansion in the United States are promising.

Source: interactive investor      Past performance is not a guide to future performance

Encouraged by Fevertree's new distributor arrangements in the US, Investec's Nicola Mallard increased her price target this morning by another 20% to 3845p, from 3200p. But even that upgrade was quickly overtaken by events following today’s latest share price surge.

In a measure of how quickly Fevertree has accelerated growth in recent months, Mallard's price target was a mere 2330p at the start of 2018. Her current  forecasts are based on a whopping projected 2018 price earnings multiple of 73.8x.
 

Source: interactive investor      Past performance is not a guide to future performance

Investec's Mallard also lifted her full-year revenues forecast by about £15 million to £220 million, resulting in a 9% rise in earnings per share (EPS) estimate.

This was based on today's impressive interim figures showing a 45% jump in revenues to £104.2 million and diluted EPS up 36% to 22.72p. In line with a big jump in net cash to £56.4 million, Fevertree increased its interim dividend by 40% to 4.22p a share.

CEO Tim Warrillow said it had been a half year of major progress, with the UK division enjoying "another period of exceptional growth".

Last Christmas, Fevertree overtook Schweppes by value in UK shops and off-licences and it has continued to grow strongly despite its rival - under Coca-Cola's ownership - redesigning bottles and launching a marketing campaign.

Fevertree also completed the transition to wholly-owned operations in the US in early June, meaning that the company now directly manages marketing, sales and distribution in this key market.

This resulted in it signing an agreement with Southern Glazer's Wine and Spirits, the largest North American wine and spirits distribution company, to be the group's exclusive on-trade partner across 29 states from August.

Warrillow described the partnership as a significant endorsement and a strong platform for Fevertree in the United States in 2019 and beyond.

While the US premium mixer market remains at a relatively early stage, Fevertree is seeing an acceleration in trends towards quality in different spirits categories as well as an increasing focus on provenance.

In continental Europe, the company has recently signed an agreement with Grupo Damm - the maker of Estrella Damm beer -  to become exclusive distributor in the Spanish market.

About 45% of the group's sales are overseas, with the company selling a range of carbonated mixers to hotels, restaurants, bars and cafes, as well as selected retail outlets.

The Fevertree brand was launched in 2005 to provide high quality mixers to meet growing demand for premium spirits, in particular gin, but also for vodka, rum and whisky.

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