Fevertree’s full-year revenue rose by around 6% to £364.4mn, ignoring exchange rate impacts. This was largely driven by a 24% uplift in US sales, which more than offset a 1% decline in the UK. Market share grew across all key regions.
Underlying cash profit (EBITDA) doubled in the second half due to operational cost-cutting efforts, which helped to offset “material inflationary cost pressures”.
Full-year underlying cash profits are expected to come in at around £30mn, right at the bottom of its previously lowered £30-36mn guidance range.
In 2024, Fevertree expects full-year revenue to rise by 8%. Underlying cash profit margins are expected to rise to about 15%.
The shares fell 2.8% following the announcement.
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Our view
Fevertree’s results were anything but dull as it delivered a somewhat mixed performance over 2023. Revenue bubbled higher as the group scooped up market share across its key regions. And after a dismal first half, profits doubled over the second half and now look to be heading in the right direction again.
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, margins and profits were getting squeezed.
That’s why we’re pleased to hear the group’s 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. 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, particularly in the US and Europe.
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.
Last we heard, 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 margin by the end of 2024.
We’re pleased to see some of the issues of recent years finally ironed out. Momentum has turned positive, but currently, the mammoth valuation is 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
- Forward price/earnings ratio (next 12 months): 28.8
- Average forward price/earnings ratio (since 2015): 46.4
- Prospective dividend yield (next 12 months): 1.8%
- Average prospective dividend yield (since 2015): 0.8%
All ratios are sourced from Refinitiv. 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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