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Rollercoaster ride for Fevertree, but brokers still bullish

“Fevertree is delivering growth that is significantly stronger and at higher margins than the peer group”

150ml fevertree cans
The 150ml cans introduced last year proved very popular, Fevertree said yesterday

It’s been an interesting couple of days for Fevertree Drinks PLC (LON:FEVR) investors this week.

The full-year results came out on Tuesday and, given that the numbers were pretty well-flagged in January’s trading update, they were fairly unsurprising.

The share price reaction on Wednesday morning was anything but, with shares almost immediately losing 7% as investors began to take profits.

After getting a beating for an hour or so on Tuesday, the price started to climb, a rise which continued for most of the day. By 3pm, shares were testing all-time highs and although they dipped slightly after that, they still closed 3% higher at £14.99.

Today (Wednesday) has followed a similar theme to that of yesterday although neither the fall nor the rise has been as dramatic.

Given the unusually erratic share price, it can be difficult to work out what to do if you’re a Fevertree investor. Shore Capital's Phil Carroll reckons he’s got the answer though: buy more.

“In terms of the outlook, management point to an encouraging start to the year which may be a slight disappointment to some investors,” the analyst said in a note to clients.

“But given the sheer momentum in the fourth quarter we see it more as management’s normal relatively prudent approach to managing expectations.”

Carroll acknowledges it won’t be an easy task to beat last year’s growth in 2017, but is still confident in the tonic maker’s ability to deliver more upgrades.

“We still believe Fevertree is capable of delivering further upgrades as we progress through the year given its excellent brand and product proposition and a lack of effective competition.”

So which areas could prove particularly lucrative for the London-based firm in 2017?

Carroll thinks Fevertree is being sensible in investing in its dark spirits mixers, such as ginger beer, which could rake in big bucks, particularly in the US.

“We note [the company] has a strong new product development pipeline which includes a range of mixers targeting the dark spirits market which in premium spirits is 10x the size of the gin market,” Carroll said.

And what if shares take another kicking? Carroll sticks with his advice to snap shares up in the event of another drop in the share price.

“Should there be a ‘weaker’ period of growth that disappoints the market, we would see this as an opportunity to acquire the stock.”

Shares were down 5% at £14.22 on Wednesday afternoon.

Quick facts: Fevertree Drinks PLC

Price: 2110 GBX

AIM:FEVR
Market: AIM
Market Cap: £2.45 billion
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