Fevertree Drinks plc (FEVR) Ordinary 0.25p

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Fevertree has announced a strategic partnership with global beverage company, Molson Coors, to help drive growth in the US. Molson Coors is set to buy an 8.5% stake in Fevertree for £71mn, which it will return to shareholders in the form of share buybacks, beginning in February 2025.

Fevertree’s also seen full-year revenue rise by 2% to £368mn, ignoring the impact of exchange rates. This was driven by double-digit growth in the US and the Rest of the World, which helped to offset declines in the UK.

The group expects a “strong uplift” in underlying cash profit (EBITDA) when it reports last year’s results. Market expectations currently sit at around £50.8mn.

In 2025, revenue is expected to grow at a low single-digit rate, while increased marketing spend in the US will have a short-term impact on cash profits. In 2026, revenue and cash profits are both expected to grow at double-digit rates.

The shares rose 15.3% in early trading.

Our view

Fevertree announced it’s teaming up with Molson Coors, one of the world’s largest beverage companies, to help get its drinks in the hands of more customers. Molson Coors is set to acquire an 8.5% stake in Fevertree for £71mn, which Fevertree will return to shareholders via share buybacks beginning in February.

Fevertree’s progress in the US to date has been impressive, becoming the number one brand in both the tonic and ginger beer categories. This market has already grown to become the group’s largest region by sales. But given the vast size of the US, there’s still a lot of room for growth.

That’s what this partnership is all about – driving Fevertree’s next stage of growth across the pond. Fevertree’s handing over equity, and in return, getting access to Coors’ broad US production, distribution and customer network. Having the second-largest US brewer on your side is no bad thing. Both parties have agreed to substantial marketing investment to help elevate brand awareness further and drive sales.

Fevertree continues to expand its drinks portfolio with new products, and non-tonic mixers have grown to around 42% of total sales. These new offerings open the door to different types of drinkers, drastically increasing the number of customers it has to go after.

But there are some challenges to be wary of.

UK sales continue to trend in the wrong direction. 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.

While we’re positive on the long-term outlook for the Coors partnership, expectations of profits in 2025 are weak. Given that marketing spending is set to ramp up and operational creases will likely need to be ironed out, we wouldn't rule out more disappointment on the profit front as the year progresses.

Last we heard, the balance sheet was in good shape thanks to low debt levels, and there’s currently a prospective 2.3% dividend yield on offer. The partnership may reduce demands on Fevertree’s cash over time, potentially clearing room for further shareholder returns. But as always, no shareholder returns are guaranteed.

The long-term outlook is better than it has been for some time. But even with the recently announced partnership, we see plenty of trip hazards in the near term. Potential investors should expect a bumpy ride.

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.

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.

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