Skip to main content
  • Register
  • Help
  • Contact us

Fevertree - sales ahead of guidance, but margins under pressure

George Salmon | 26 March 2019 | A A A
Fevertree - sales ahead of guidance, but margins under pressure

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Fevertree Drinks plc Ordinary 0.25p

Sell: 2,507.00 | Buy: 2,512.00 | Change 6.00 (0.24%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Another strong performance from the UK helped group revenue rise 40% to £237.4m, which was ahead of guidance. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) grew 34% to £78.6m.

However, the effect of the UK sugar tax, and higher costs saw EBITDA margins decline from 34.5% to 33.1%.

The shares fell 3.3% following the announcement.

The total dividend for 2018 rose 36.2% to 14.5p.

View the latest share price and how to deal

Our view

UK drinking habits have changed - we're opting for long drinks rather than just wine and beer for post-work and weekend tipples. And those artisan spirit-swigging customers are happy to pay a bit more for Fevertree's higher end accompaniment.

That's played into Fevertree's hands. Sales growth has been impressive - increasing from £59m in 2015 to £237m last year. Its huge popularity has been reflected in the share price too - it's around 16 times higher than when the company first listed in 2014.

But sales growth alone doesn't make a business. What stands out about Fevertree is its operating model. The group outsources most of its operations - think suppliers, bottlers and distributors - and employs under 100 people.

That lean operating model means profits drop straight through to cash. That can then be returned to shareholders or reinvested to fund growth.

Unusually for a fast growing company, Fevertree offers a dividend. A prospective yield of 0.8% might not be huge, but has the potential to grow if all goes well.

As far as the future goes, much is dependent on the group's overseas operations. That's because the group's biggest market - the UK - is increasingly mature.

The US has the most potential. Fevertree only has a small piece of the American pie so far, and sales are growing. However, new markets bring new challenges. Add for now the US business is reliant on colas and ginger ales, both of which are in reasonably crowded markets, and there is no guarantee the group can replicate the UK performance.

The shares currently trade on 49 times expected earnings. That's lower than it has been in the past, but still well above the market average. While it's impossible not to be impressed by Fevertree's growth to date, that rating means the shares could come under pressure if US expansion doesn't hit the mark.

Register for updates on Fevertree

Full year trading update

UK revenues rose 53% to £134.2m, with strong demand from bars, restaurants and supermarkets. The hot summer, with events like the World Cup and Royal Wedding, helped boost performance. The group now has 42% of the branded mixer category.

In America, sales increased 24% on a constant currency basis, to £35.8m. During the year, the group signed an exclusive distribution partnership with SGWS to serve 29 states and launched its Citrus Tonic in partnership with Patron Tequila. Still, ginger ales remain the lead contributor to US performance.

Underlying European revenue rose 23% £55.5m, with expansion meaning headcount more than doubled. In Rest of the World, sales improved 48% to £12m.

The year-end net cash position was £83.6m, up from £50.9m last year.

Looking ahead, the group expects a moderation of sales growth in the UK. However it said it's "well set to drive the international opportunity" going forwards, and group trading so far this year is in line with expectations.

Find out more about Fevertree shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.