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Fevertree continues to sparkle

The premium drinks mixer supplier posted 40 per cent growth in revenue, slightly ahead of expectations
March 27, 2019

Since listing in 2014, Fevertree's (FEVR) unfettered commercial success and unconventional business model have posed a challenge for analysts seeking to accurately value the premium mixer brand. A mass of intangibles set against a sliver of fixed assets and miniscule capex requirements, and with financial performance largely in thrall to working capital flows, it's a company that hasn't relied on taking market share, but one which has carved out an entirely new corner of the market in response to the growth of high-end spirit brands.

IC TIP: Hold at 2537p

Sales have increased sevenfold since the 2014 year-end, a phenomenal increase, although surpassed by that of earnings. That momentum showed few signs of abating through 2018, with adjusted cash profit increasing by 34 per cent to £78.6m – no indications yet that sales are falling flat. The impact of a 1.7 percentage point contraction in the gross margin was minimal, as Fevertree had to contend with the UK Soft Drinks Industry Levy, higher glass costs and unfavourable foreign exchange movements.

The UK remains the main driver of growth as revenue surged by 53 per cent to £134m. As the market matures, a moderation in future UK growth is expected, so all eyes are fixed abroad. Numis predicts that Europe and the US will propel substantial growth over the medium term. With a mixer category threefold the size of the UK, Continental European revenue increased by 23 per cent on a constant-currency basis to £55.5m. The large US market and relatively immature premium mixer category represent a significant but challenging growth opportunity. Led by the ginger range, US operations produced sales growth of 24 per cent on a constant-currency basis to £35.8m.

Investec forecasts adjusted pre-tax profits of £82m and EPS of 56.7p this year, rising to £91.5m and 63.8p in 2020.

FEVERTREE (FEVR)   
ORD PRICE:2,537pMARKET VALUE:£2.95bn
TOUCH:2,536-2,544p12-MONTH HIGH:4,120pLOW: 2,106p
DIVIDEND YIELD:0.6%PE RATIO:48
NET ASSET VALUE:1,578p*NET CASH:£83.4m
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201434.72.51.50.30
201559.316.811.63.08
201610234.323.96.25
201717056.439.510.65
201823775.653.414.50
% change+39+34+35+36
Ex-div:25 Apr   
Payment:31 May   
*Includes intangible assets of £41.7m, or 359p a share