Fevertree has gained market share across its regions, which has helped to deliver sales growth year-to-date.
In the UK, innovation across Rum, Vodka and other spirits has helped strengthen the group’s category-leading position. The brand continues to grow in Europe, ahead of the broader mixer category.
The group said it remains “comfortable” with full-year expectations, which point to sales growth of around 8% and underlying cash profit margins of around 15%.
The shares rose 2.4% following the announcement.
Our view
Fevertree’s managed to deliver year-to-date sales growth, helped by growing market share across its regions. That’s given the group the confidence to reiterate its full-year guidance ahead of the key summer trading period.
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, profitability got squeezed last year.
That's why we were pleased to hear the group 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 last year. 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. And with the UK forecast to have its wettest summer in 100 years, successful international expansion will be critical to continued growth.
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.
At the last count, 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 profit margin this year.
We're pleased to see some of the issues of recent years finally ironed out. Momentum has turned positive, but the mammoth valuation remains 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, based on previous day’s closing values. 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.
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