Analysts believe Fevertree Drinks (AIM:FEVR), the premium tonic company, is well-positioned to grow in the longer term, once the headwinds plaguing the industry begin to reduce.
Liberum experts raised the stock’s rating from ‘hold’ to ‘buy’ after noting that the stock is expected to recover ahead of consensus in 2025 and 2026.
The spirits industry has struggled globally in recent periods due to a slowdown in demand, caused by weakened consumer spending, and such headwinds are predicted to continue deep into 2024.
Fevertree has felt the impact of this, with gross margins falling by 20 percentage points in the last three and a half years.
However, the group’s strategy has been firmly on gaining more market share, a tactic which Liberum reckons will be its “key value driver” once the industry returns to growth.
Sales growth is expected to remain subdued and EBITDA margins aren’t likely to ever return to their historic highs of 30%, but the bank’s experts remained undeterred and believe now is a good time to develop a position in the stock.
“Now is the time considering the low average daily volume of 265k… We argue valuation now is at an appropriate premium to European spirits peers, and earnings upgrades will be the key driver of share price,” Liberum said.
The bank also lifted its target price from 1,200p to 1,300p, representing a 32% premium to the current 982p share price.