Cost pressures continue to cloud potential margin recovery for Fevertree Drinks (AIM:FEVR) PLC, according to Liberum, which kept its ‘hold’ rating on the stock with a target price of 1,000p.
While energy and transatlantic freight costs, which are two of the biggest expenditures, are continuing to decline, the broker remains sceptical on just how low the prices will go and whether the company can rely on them to help it return to prehistoric levels of profitability.
The company is also in a “unique position” as a premium brand, possessing a roughly 45% market share in the UK with growth ambitions in other markets.
However, its premium options are up to four times higher in price compared to value options, which is much higher than the up to two times higher seen in most consumer staples categories.
Glass bottles are a key part of its premium offering and passing on the costs through price increases will only see this gap grow.
“The group is therefore dependent on energy costs to normalise, and while there are positive signs in this regard, it is not something one can reliably depend upon,” the broker said.
Growth expectations for next year remain “bullish”, between 13% to 18%, driven by the expected growth of roughly 30% in the US.