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Will Fever-Tree's share price get its fizz back?

Fever-Tree's [FEVR] share price lost some of its fizz last year. Closing 2019 down 6.85% on the year, it looked like investors had lost their thirst for the premium drinks’ mixer.

Fever-Tree’s share price slump continued until 13 March this year, when the stock closed at 892.2p — a level not seen since 2016. 

Since that point, however, the stock has notched up a 118% gain — no mean feat considering the coronavirus has shut down watering holes across the UK. Drinkers choosing the premium mixer for their preferred tipple at home are driving this rise in Fever-Tree’s share price.

Still, half-year results on 8 September saw profits down year-on-year, causing Fever-Tree’s share price to go somewhat flat. With the stock still down 3% this year, is there any upside left, or will it fall further?

 

 

How did Fever-Tree perform in half-year results?

In Fever-Tree’s half-year results, revenue came in at £104.2m, an 11% decrease from the same period last year. Profits also saw a steep decline, coming in at £48.7m, a 20% decline from last year, while adjusted EBITA was £23.8m, a 35% drop.

In the UK, revenue came in at £48.3m, a 20% drop from the £60.7m seen in the first half of 2019. Europe saw the steepest percentage decline in revenue, falling 29% to come in at £20.5m. 

£104.2million

Fever-Tree's half-year revenue - a 11% YoY drop

  

However, Fever-Tree uncorked a huge 39% increase in US revenue, posting £27.4m worth of sales. The strong stateside performance came down to price optimisation, increased brand awareness and the successful launch of its sparkling pink grapefruit mixer. For the rest of the world, Fever-Tree reported an £8m haul, up 2.6% from the £7.8m in the same period last year.

Unsurprisingly, given that bars and pubs were shut at the height of lockdown, Fever-Tree saw a 61% decline in on-trade revenue, which came in at £12.4m.  However, money from the off-trade — i.e. the at-home — market was £35.9m, a 24% year-on-year increase. 

"We have had an encouraging start to the second half of the year and, while we certainly aren't immune to the ongoing challenges of Covid-19, our performance and our investments so far this year, coupled with the growing interest in long mixed drinks, gives me confidence that we will exit the crisis in an even stronger position than we entered it," commented chief executive Tim Warrillow.

Fever-Tree's share price dipped 5% following the results coming out, before closing last week down 2%.

“We have had an encouraging start to the second half of the year and, while we certainly aren't immune to the ongoing challenges of Covid-19, our performance and our investments so far this year, coupled with the growing interest in long mixed drinks, gives me confidence that we will exit the crisis in an even stronger position than we entered it” - Fever-Tree CEO Tim Warrillow

 

Where will Fever-Tree’s share price end 2020?

Despite the drop in on-trade revenue, the growth in off-trade revenue means that some of the edge was taken off the disappointing, if unsurprising, results. For the full-year, Fever-Tree expects revenue to come in between £235m and £243m. While that’s well below the £260.5m seen last year, it shows there is still clear demand for Fever-Tree’s product. 

In the results, Fever-Tree highlighted the recent trend towards premium spirits, pointing out that global volume had increased 9.2% CAGR between 2015 and 2019, while Fever-Tree itself had seen a 50% retail growth CAGR between 2012 and 2019, easily outpacing the wider premium mixer market’s 29% CAGR. 

Whether same trends will hold true for 2020 remains to be seen. A few weeks ago analysts might have said that, if lockdown measures continued to ease, Fever-Tree’s share price could gain.

However, with coronavirus cases increasing and renewed restrictions on social gatherings being introduced, Fever-Tree’s share price could remain suppressed in the short-term. If pubs are shut once again, Fever-Tree could be forced to re-evaluate its full-year guidance.

Among the analysts, Fever-Tree's share price carries an average 2,424.98p 12-month price target, which would see a 16.2% upside on the price through 14 September’s close.

 

Market Cap£2.498bn
PE ratio (TTM)52.54
EPS (TTM)40.90
Quarterly Revenue Growth (YoY)-11.2%

Fever-Tree share price vitals, Yahoo Finance, 15 September 2020

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