Fevertree's sales surge in the US

Fevertree Drinks (FEVR) shares gained after the premium tonics supplier confirmed it is on track to double cash profits this year after it delivered an annual performance in line with its January trading statement, which is always helpful when you have a record of undershooting guidance. 

The US is now the company's biggest revenue generator after sales there surged by 22 per cent. This drove the overall top-line performance, as market share gains were made Stateside as consumers reacted positively to the introduction of canned products. Elsewhere, UK revenue was flat, European revenue was up 4 per cent, and rest-of-the-world (by far the smallest division) revenue contracted by 14 per cent. 

Gross margin fell 240 basis points to 32.1 per cent after a year of inflationary headwinds, despite improvements in the second half. Margins were north of 40 per cent as recently as 2021. This is the context in which the 600 basis point improvement in margin expected by the company this year (because of lower glass prices, and softer energy and freight costs) must be considered. 

Management is comfortable with a market forecast of c10 per cent revenue growth for the Fevertree brand in 2024, although one thing to note is that the results didn't repeat the 8 per cent total revenue forecast mentioned in the January update. 

The balance sheet remains in a net cash position, although this fell by over £40mn year on year due to working capital movements and the downturn in profit. A better cash profit margin this year should help. 

We see some concrete signs of recovery and growth potential. But with the shares trading at 32 times forward earnings, well ahead of a drinks peers such as Remy Cointreau (FR:RCO), we think it wise to stay neutral. Hold.  

Last IC view: Hold, 1,232p, 12 Sep 2023