ii view: Fevertree share price rallies despite weaker profit

It’s been a year to forget for shareholders of this AIM listed drinks company, but are things about to change? We assess prospects. 

First-half results to 30 June

• Revenue up 14% to £161 million
• Adjusted profit down 25% to £22 million
• Pre-tax profit down 30% to £17.6 million
• Interim dividend up 2% to 5.63p per share
• Cash held down 25% to £100 million

Guidance:

• Reiterated previous expectation for full-year revenue of between £355 million and £365 million
• Reiterated previous expectation for full-year adjusted profit of between £37.5 million and £45 million

Chief executive Tim Warrillow said: 

"Fever-Tree has delivered a robust revenue performance in the first half of 2022, with a particularly strong performance in Europe as the On-Trade recovered. Demand has been strong in the US and we have continued to increase our availability on shelf enabling us to deliver a record month in August, a fantastic achievement by the team.

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ii round-up:

Premium soft drinks maker Fevertree Drinks (LSE:FEVR) today reported lower profit for the half-year to the end of June, hit by rising costs such as energy for glass bottle production and transport fees. 

Pre-tax profit for the period fell 30% to £17.6 million despite sales rising 14% to £161 million, although that was broadly in line with City forecasts. Management also reiterated its previously reduced full-year estimates for both revenue and adjusted profit.

Fevertree shares rose by more than 10% in UK trading having come into this latest announcement down two-thirds in the year-to-date. Fellow soft drinks maker Britvic (LSE:BVIC) is down around 13%, while premium alcoholic spirits maker Diageo (LSE:DGE) has fallen nearer 5%. The FTSE All Share index is down by just over 2%.

Fevertree continues to expect annual revenues of between £355 million and £365 million, as per its July trading update, with adjusted full-year profit, or EBITDA still forecast to come in at between £37.5 million and £45 million. That’s down from £63 million in 2021. 

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Cash held of £100 million, although down from £133 million following the payment of a previous special dividend, aided a 2% increase in the interim dividend payment to 5.63p per share. 

Broker Morgan Stanley summarised the results as ‘mixed,’ but with management guidance likely to reassure. It reiterates its "equal weight" stance on the shares.  

ii view:

Launched in 2005, Fevertree is today a premium soft drinks maker whose products are sold in more than 75 countries. Its carbonated drinks, regularly used as mixers with alcoholic spirits, are supplied to customers including hotels, restaurants, bars and cafes, the so-called on-trade outlets, as well as supermarkets and off-licenses, or off-trade retailers. Customers include Marriott (NASDAQ:MAR) hotels, Walt Disney (NYSE:DIS) and Hilton Worldwide (NYSE:HLT) hotels. Fevertree's drinks include tonics, ginger ales, ginger beer, cola, sodas and lemonades.

For investors, an uncertain economic outlook, with rising interest rates and a cost-of-living crisis, offers a tough backdrop. Elevated costs for both transport such as trans-Atlantic shipping and product materials are now weighing, while an estimated price/earnings (PE) ratio of around 30 times for 2023 is still not obviously cheap. 

More favourably, a recovery in its bar, or on-trade sales has been seen following the pandemic, management initiatives to aid costs include establishing production overseas to reduce transport costs, while room to expand overseas sales remains.

While potential for further growth and a weak share price will tempt more adventurous investors, others may wish to await evidence of a recovery in profit before taking the plunge. 

Positives: 

• Diversified geographical sales
• Strong brand 

Negatives:

Battling cost headwinds

Uncertain economic outlook

The average rating of stock market analysts:

Hold