Surging Fevertree shares back on form

Posh mixers firm Fevertree Drinks (FEVR) reminded us why it is AIM Company of the Year today as it upgraded profits guidance for the fifth time in just 12 months. The now customary revision to forecasts boosted the share price by 12% to 2,266p, marking a return to form following an uncharacteristically poor run in recent weeks.

Normal service seems to have resumed following a very brief shake-out this month, which took the decline since the September high to as much as 28%. Now, the stock is a spectacular 1,500% higher than when it listed on AIM in November 2014, amid consistently strong demand for its upmarket tonic waters and mixers in the UK and overseas.

In today’s update, the company highlighted its “exceptional” performance in the UK, where mixers are now the fastest growing category across the soft drinks sector. Remarkably, Fevertree claims it has been responsible for 97% of the value growth in the retail mixer category over the last 12 months.

This growth has attracted the attention of Coca-Cola, with the drinks giant recently announcing plans to spend £10 million relaunching its Schweppes tonic range in the UK, including through redesigned bottles and a marketing campaign.

Despite this potential threat, Investec Securities analyst Nicola Mallard believes there’s more to come from the company. She reiterated her ‘buy’ rating, alongside a new target price of 2,330p, up from 2,220p, and said she was impressed by continued momentum in the UK.

“Having reported over 100% UK growth in the previous four half-year periods, we had expected some degree of slowing,” wrote Mallard, “but growth has continued at a very healthy level in both the on and off-trade.”

Phil Carroll at Shore Capital has a ‘hold’ rating and price target of 1,925p. However, he upgraded his forecasts following today’s trading update, even though his figures were already ahead of consensus.

He now predicts full-year revenues of £158 million, with pre-tax profits up to £53.3 million from the £50.5 million previously expected.

In terms of valuation, Carroll puts Fevertree on a full year price/earnings (PE) ratio of 51.5x. He added: “We believe the valuation remains full although we expect the shares to gain back some of the recent lost ground.” They did.

On Investec’s upgraded EPS forecasts – up 12% for 2017 and 6% for 2018 – and at 2,200p, Fevertree currently trades on a forward PE of 57. Revenue is tipped to increase by 55% this year, then 15% next year and 10% in 2019.

The brand was launched in 2005 to provide high quality mixers to meet growing demand for premium spirits, in particular gin, but also for vodka, rum and whisky.

Fevertree now sells a range of carbonated mixers to hotels, restaurants, bars and cafes, as well as selected retail outlets. About 56% of the group’s sales were overseas last year, with key markets being the United States and Europe.

Last month’s AIM Awards saw Fevertree beat off competition from (BOO), IQE (IQE) and RWS Holdings (RWS) to win the coveted Company of the Year category.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.