Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Fevertree - trading in line with full-year guidance

In an update ahead of its Annual General Meeting, Fevertree announced that it's trading in-line with expectations.

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.

Prices delayed by at least 15 minutes

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

In an update ahead of its Annual General Meeting, Fevertree announced that it's trading in-line with expectations.

In the UK, its largest market, Fevertree recorded its biggest ever quarterly market share in hospitality venues, 6% ahead of pre-pandemic levels.

Ahead of the key summer trading period, the group reiterated guidance for full-year revenue to be in the range £390m-£405m, reflecting expected growth of 13-18%.

Cost-saving efforts are expected to offset higher costs and drive margin improvements this year. As a result, full-year cash profit (EBITDA) guidance between £36m-£42m remains intact.

The shares fell 2.4% following the announcement.

View the latest Fevertree share price and how to deal

Our view

Fevertree's latest trading statement indicates that everything's bubbling along as planned, with full-year revenue and profit guidance remaining intact.

Last year, Fevertree measured double-digit revenue growth in all regions except the UK. Unfortunately, the group was unable to convert these bumper revenues into higher profits as the cost of glass continued to balloon.

Energy prices are a big input cost in making glass bottles, and when 80% of your sales are bottled in glass, any fluctuation in energy prices is bound to have a material impact on costs. That ate into profitability last year, and is expected to continue for now.

Last year, delays in ramping up production at its US East Coast bottling plant meant the group relied on shipping to serve its US customers. This left Fevertree at the mercy of port congestion and heavily inflated shipping costs throughout the year. These production problems look to have been ironed out, so we should see some benefits as US bottling production ramps up.

Outsourcing most of its operations (think bottlers and distributors) is a benefit in normal times and a large portion of profits drop straight through to operating cash flow. However, a significant increase in inventory to combat supply chain pressures, particularly in the US, has been a drain on cash and we saw group cash levels take a big hit as a result.

Explosive UK growth seems to be over too. It turns out there's a limit to how much premium tonic you can sell, and it looks like Fevertree is approaching it. Successful international expansion will be critical to continue growing, particularly in the US and Europe.

Looking at the broader picture, there are some positives to consider.

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. Underlying growth outside of the UK looks healthy. However, a prolonged period of economic weakness and an increasingly embattled consumer could put a stop to that.

Despite the increased inventory spend, the balance sheet is still in good shape thanks to low levels of debt. But the group needs to get a tighter grip on costs so margins can start to move in the right direction again. Currently, the mammoth valuation is hard for us to stomach. We'd like concrete signs that overseas expansion is boosting the bottom line before we get excited about this mixer maker.

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.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
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.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 25th May 2023