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Fevertree - US market fuels sales growth

Fevertree's full-year revenue rose by around 6% to £364.4mn, ignoring exchange rate impacts...

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Fevertree's full-year revenue rose by around 6% to £364.4mn, ignoring exchange rate impacts. This was largely driven by a 24% uplift in US sales, which more than offset a 1% decline in the UK. Market share grew across all key regions.

Underlying cash profit (EBITDA) doubled in the second half due to operational cost-cutting efforts, which helped to offset "material inflationary cost pressures".

Full-year underlying cash profits are expected to come in at around £30mn, right at the bottom of its previously lowered £30-36mn guidance range.

In 2024, Fevertree expects full-year revenue to rise by 8%. Underlying cash profit margins are expected to rise to about 15%.

The shares fell 2.8% following the announcement.

View the latest Fevertree share price and how to deal

Our view

Fevertree's results were anything but dull as it delivered a somewhat mixed performance over 2023. Revenue bubbled higher as the group scooped up market share across its key regions. And after a dismal first half, profits doubled over the second half and now look to be heading in the right direction again.

At the last count around 80% of Fevertree's sales were bottled in glass, meaning fluctuating energy prices were having a material impact on the group's costs. Coupled with higher shipping costs, margins and profits were getting squeezed.

That's why we're pleased to hear the group's finally got a handle on the situation. It's locked in prices on its energy and shipping contracts, meaning there should be no nasty surprises in the near term. The focus now shifts to ramping up production and improving efficiencies to help restore margins.

New flavoured soda launches, marketing tie-ups with spirit manufacturers, and the addition of new corporate customers are helping sales in the US and Europe to surpass pre-covid levels. US growth looks especially healthy, and despite becoming the group's largest region by sales, we think there's a lot further to go given the vast size of this market.

But there are some challenges to be wary of.

There was a small decline in UK sales. It turns out there is a cap on how much premium tonic you can sell, and it looks like Fevertree has reached it in its home market. Successful international expansion will be critical to continued growth, particularly in the US and Europe.

The economic backdrop is looking slightly brighter than it did a year ago. But consumers' budgets remain stretched, so any unexpected shocks could see consumers trade down to cheaper alternatives if future price hikes aren't managed delicately.

Last we heard, the balance sheet was in good shape thanks to low levels of debt. And after a one-off inventory buyback in Australia, it looks like the worst of the operational challenges are now behind the group. But it needs to keep a tight grip on costs if it wants to nearly double its underlying cash margin by the end of 2024.

We're pleased to see some of the issues of recent years finally ironed out. Momentum has turned positive, but currently, the mammoth valuation is hard for us to stomach. We'd like to see more concrete signs that overseas expansion is boosting the bottom line before we get excited about this mixer maker.

Environmental, social and governance (ESG) risk

The food and beverage industry tends to be medium-risk in terms of ESG though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry wide especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry wide risks, with other issues varying by sub-sector.

According to Sustainalytics, Fevertree's management of ESG risk is average. The group doesn't use plastic bottles but instead uses glass or cans from a portion of recycled materials. As such, the group's products are completely recyclable, however, they are energy-intensive to mould and make. Fevertree also claims its range of mixers sold in the UK are carbon neutral. However, no concrete scope emission reduction targets appear to be in place.

Fevertree key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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 disclosure for more information.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 25th January 2024