viewFevertree Drinks PLC

Fever-Tree shares sparkle as it raises full year guidance after first half revenues jump 77%

The AIM-quoted tonic maker now expects full-year revenues to be ‘materially ahead of expectations’

Fevertree tonic water
The Great British public has a seemingly insatiable thirst for premium G&Ts…

Shares in premium tonic maker Fevertree Drinks PLC (LON:FEVR) fizzed higher after it once again upgraded its full-year guidance as its rapid growth showed no sign of losing momentum. 

In the first six months of 2017, revenues surged 77% to £71.9mln (H1 2016: £40.6mln), ahead of the 69% revenue growth it registered during the same period last year.

UK sales strong once again

Much of those gains came from its home UK market, which represents just under half of the business and saw sales more than double in the first half.

Gross margins remained stable at 54.5% (H1 2016: 54.8%), while underlying profits (EBITDA) soared to £25.2mln – 102% higher than the £12.4mln posted last year. Diluted earnings per share also more than doubled to 16.72p.

All that meant that the divi got a sizeable boost to 3.01p per share, well up on the 1.54p Fever-Tree paid out in the first half of 2016.

Most importantly for investors though, the strong performance meant that the company upgraded its full-year guidance once again – a necessity if Fever-Tree shares are to keep on their upward trajectory.

‘Materially ahead of expectations’

“We are delighted to report another strong performance in the first half of 2017, continuing the momentum seen in 2016,” said chief executive Tim Warrillow.

“We achieved growth in all our regions, driven by further distribution gains and underlying rate of sales growth as the two key trends of premiumisation and mixability continue to gather pace globally.

“Given the strong performance in the first half of the year, the Board anticipates that the outcome for the full year will be materially ahead of its expectations.”

‘Notably strong performance’ in Europe

The UK may still be the group’s key market, but it has been looking to expand into overseas markets to try and maintain the kind of growth it has enjoyed since it floated back at the end of 2014.

Fever-Tree said it had seen a “notable strong performance” in Western Europe, where the flavoured versions of its premium tonic – especially the Aromatic flavour – are proving to be a big hit.

Sales in Continental Europe jumped 64%, reflecting the “gin and tonic trend that is increasing in momentum” across the region, while ginger beer revenues provided a healthy kicker too.

Solid if unspectacular sales in US

The US represents a massive opportunity for AIM-quoted Fever-Tree given that the ‘dark liquor’ market over there is several times the size of the ‘clear liquor’ market in Europe.

The London-based company recently introduced several new variations of its popular ginger beer and ginger ale specifically to try and target this market, where the Moscow Mule is gaining in popularity.

Growth in the US has been steady if unspectacular so far, with revenues across the pond adding 43% (29% at constant currency) in the six months ended 30 June.

Fever-Tree told investors that the Americans aren’t quite up to speed with the “premium mixer opportunity” yet but added that the signs are good and that its first mover advantage – there are no real competitors of any scale – leaves it “well-positioned for future growth”.

Results well-received by analysts

Neil Wilson, senior market analyst at ETX Capital, said Fever-Tree is a "super-strong brand and its momentum looks unstoppable".

"Some stunning numbers: it has driven 99% of the value growth in the entire UK retail mixer category over the last year," he said. 

However, Wilson said Fever-Tree will have to continue to grow at its current rate to justify its valuations, which could prove tricky if there is a hit to consumer spending from inflation and any Brexit-related slowdown. 

Analysts at Whitman Howard said the challenge for the company will be to replicate its strong UK performance internationally. "That said, there is clear 'blue sky' for Fever-Tree overseas given it currently has a share of global mixers which probably still only amounts to low single digits."

Share price up more than 1000% since IPO in 2014

Fever-Tree’s management have always adopted an ‘under promise, over deliver’ kind of approach and the company has consistently beaten expectations in its relatively short time as a listed company.

In fact, since its IPO in November 2014, the share price has added an impressive 1000% or so and is currently up 11.7% to £19.49.

--Updates for share price and broker comment--

Quick facts: Fevertree Drinks PLC

Price: 1108 GBX

Market: AIM
Market Cap: £1.29 billion

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