Insider: significant director buying at Fevertree and Tesco
After a dismal few years, the tide could be turning at the tonics firm; management certainly thinks so. Graeme Evans explains why. He also spots dealing activity at a couple of other well-known companies.
3rd February 2025 07:50
by Graeme Evans from interactive investor
Three directors of Fevertree Drinks (LSE:FEVR) have spent £1.25 million backing shares to keep their fizz in the wake of a “transformational” US strategic partnership with Molson Coors.
The deal helped Fevertree rebound 20% to 791p on Thursday, ending a dismal run in which the former AIM high-flier slid from May’s 1,195p to a decade low of 611.5p by mid-January.
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Drinks industry veteran Kevin Havelock, who is the company’s senior independent director and a board member since 2018, led the buying with a purchase worth £944,000.
His dealings following the announcement were at 771p, while chair Domenic De Lorenzo and chief financial officer Andy Branchflower spent £70,000 and £248,000 respectively at 785p.
The shares closed last week at 800p, which compares with the 1,325p target of Deutsche Bank amid hopes that the US involvement of Molson Coors will lead to a step change in growth and profitability prospects over the medium term.
The bank said: “Strategically, the partnership should solve two key issues Fevertree has faced in the US - lack of scale to support growth and local US production.”
The world’s fourth-largest brewer, whose brands include Carling, Staropramen and Miller Lite, has stepped up its expansion beyond the beer market by taking a 8.5% stake as Fevertree’s second largest shareholder.
The £71 million proceeds of its acquisition of newly created shares at 654.2p will be returned to Fevertree shareholders through a buyback programme, which starts this month.
Having entered the US market in 2008, Fevertree has grown to become the country’s number one tonic and ginger beer brand and last year achieved total sales of £128 million.
Constant currency growth reached 12% in 2024, while the UK declined by 4% to £110.5 million amid a subdued spirits backdrop in the on-trade (drinks sold in a bar, restaurant, or nightclub).
An accompanying trading update last week showed overall sales growth of 4%, which was towards the bottom end of September guidance and a long way off initial hopes for 10%. Earnings are set to be in line with forecasts.
Fevertree expects the switch to the new US arrangements will have an impact on current year performance before double digit group revenue and earnings growth in 2026.
It then sees a sustained uplift in the medium term as it realises the benefit of Molson Coors' distribution platform, operational scale and expertise, as well as investments behind the brand.
US bank Jefferies reduced its current year earnings forecast by 30% to 22.5p a share but is modelling significant growth in the 2028 figure to twice 2024’s level at 50.8p.
The bank said: “Whilst 2025 will be a transition year, the deal is a game changer for Fevertree’s potential earnings power.”
It added: “Not only does this represent a step change for growth in Fever's largest market, the business will become more profitable and cash generative.”
Jefferies said it did not rule out further opportunities between Molson Coors and Fevertree beyond the US, although Peel Hunt points out the tie-up is a potential block to other buyers.
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The stock trades on about 17 times Jefferies’ 2027 earnings forecast, whereas in 2018 the company traded on a lofty multiple of 70 times for a market value of £4 billion.
This was driven by the benefits of a largely outsourced business model, which gave Fevertree the flexibility to pursue opportunities in new markets including the US.
However, this also left it more exposed to significant cost headwinds, such as the spike in glass prices and labour shortage pressures on America’s east coast following the pandemic.
Time to fill your basket?
Directors have shown their confidence in more progress for Tesco (LSE:TSCO) and Currys (LSE:CURY) after spending £150,000 and £31,000 respectively on the top performing shares.
The supermarket’s chair Gerry Murphy bought 40,000 shares on Wednesday at a price of 371p, which is near to a decade high following a strong run from 280p seen in April.
A third-quarter update, which included like-for-like UK sales growth of 4.1% in the peak Christmas period, highlighted Tesco’s status as a core holding in UK retail.
Bernstein analysts raised their price target to 430p on Thursday while counterparts at UBS are at 410p following the update. The bank said a valuation multiple of 12.2 times forecast earnings remains attractive, making Tesco its top pick among food retailers in 2025.
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The rebound for Currys shares has taken its shares from 47p just under a year ago to Friday’s close price of 94p. Buyers last week included senior independent director Octavia Morley, who made her investment on Tuesday at a price of 89.5p.
In its Christmas update, the electricals chain reported 2% UK like-for-like sales growth as it lifted profit guidance for the April financial year to between £145 million and £155 million.
A much stronger balance sheet means the company also expects to declare a resumed dividend of 1.3p a share when it reports full-year results in July. Chief executive Alex Baldock added: “We start 2025 confident that our strategy is working.”
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