Holders of shares in AIM-listed mixer drinks specialist Fevertree (LSE: FEVR) could have been forgiven for being somewhat nervous in anticipation of today’s interim figures from the company.
Following a hugely successful few years, there have been suggestions from some analysts that the UK’s recent love for gin is now beginning to fade and that the £2.7bn cap would likely struggle to better last year’s sales in the sweltering summer of 2018. Questions were also being raised regarding Fevertree’s decision to move into the potentially-highly-lucrative but notoriously difficult-to-crack US market.
This morning’s numbers would seem to give some credence to these concerns.
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Losing fizz?
We’re certainly not talking a disaster here. Indeed, Fevertree reported “continued growth” in all four of the regions in which it operates over the first six months of 2019 including “very encouraging momentum” in North America.
With regard to the UK, the company reflected that it had “further strengthened” its position as the top brand in the mixer category, despite the relatively poor weather over the last few months. It also reported securing “significant off-trade distribution wins” in Europe and an “acceleration of growth” in Australia and Canada.
As good as all this sounds, however, the actual numbers were somewhat less impressive.
The 13% rise in revenue to £117.3m over the first half of 2019 was slightly lower than some analysts were expecting and far below the 45% achieved over the same period last year. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) came in at £36.7m — a rise of 8% but, again, a far lower rate of growth than that reported in 2018 (+35%).
CEO Tim Warrilow remains bullish. Looking to the future, he said that Fevertree’s focus on long mixed drinks was “gathering momentum and starting to win share from beer and wine”.
Mr Warrilow went on to say that the company’s range of products, connections with spirit makers, the strength of its brand and the growth of its distribution network made management confident of the “significant global opportunity that lies ahead” for Fevertree.
Indicative of this belief, the interim dividend was hiked 23% to 5.2p per share.
Still expensive
Fevertree’s share price was down around 5% in early trading, erasing the gains seen yesterday in anticipation of today’s results. It would seem that the company’s prediction that trading would only be in line with full-year expectations this time around was deemed not enough for a good number of its growth-focused owners.
Current analyst expectations of 58.3p per share for FY2019 leave the stock on a forecast price-to-earnings (P/E) ratio of roughly 37. That’s certainly not as high as it once was but it remains pretty frothy considering the firm’s near-term outlook.
Sitting on the sidelines
This is, without doubt, a great business. Many others would kill for Fevertree’s fat profit margins, huge returns on capital employed and £104.1m net cash position.
But while the shares have almost halved from the all-time high hit last September, today’s numbers make me inclined to wait for the stock to fall even further before taking a position.
No stock is worth buying at any price and, right now, the rate of progress being made is at odds with the lofty valuation, in my view.
Fevertree remains on my watchlist.
