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Fevertree fails to upgrade expectations in a trading update for first time since listing

Trading is in-line so far this year, but that’s not good enough when there is so much growth baked into the Fevertree share price
fevertree drinks
All attention will be on the US now, which has its own dedicated management team in place

For the first time since joining AIM, Fevertree Drinks PLC (LON:FEVR) has failed to upgrade its outlook for the year in a trading statement.

In an update ahead of its annual general meeting later today, the posh tonic maker said it is “trading in-line with market expectations”.

READ: Fevertree trading “in-line”

With still a sizeable chunk of the year left, most companies would be content with that position, but not Fevertree, where investors are more accustomed to trading being “materially” or “comfortably” ahead.

Analysts are expecting the London-based company to report earnings per share of around 43.5p this year, giving the stock a 2018 price-to-earnings ratio of more than 60.

Given that the average company will have a PE ratio of somewhere between 15 and 25, it is obvious there is a lot of future growth baked into the share price.

That’s why shares are down 7% today to £27.12; good is not good enough for Fevertree when the market is expecting great.

The share price had also been climbing into today’s announcement, with investors clearly backing the drinks maker to post something better than ‘just alright’.

Attention switches to US now

The UK continues to be the key sales driver, but the company will be looking to the US – where the estimated market is several times the size of that in its home country – for future growth.

So far, things have been a bit slow across the pond, but a US-based team is now in place and ready to take over the reins on June 1.

Investors will be hoping a permanent presence over in the States will help to drive sales in a potentially huge and lucrative market, for which it has been developing new products such as its Madagascan Cola and Spiced Orange Ginger Ale drinks.

“We remain of the view that there is a significant opportunity for Fevertree with the growth engine now more likely to be in the US,” wrote Shore Capital analyst Phil Carroll in a note to clients.

Time to invest?

He adds that today's falls could be a chance for long-term holders to snap up some more of the stock.

“The lack of upgrades to market expectations may put a dampener on the share price today, especially considering it has been rising into today’s statement.

“For some investors this may present an opportunity when considering the long-term opportunity in Fevertree if it executes its broader ambitions.”

Board remains confident

At the company’s AGM in the City this morning, chairman Bill Ronald reassured investors that despite not upgrading forecasts, “the board remains very confident” in the company’s outlook.

The 62-year-old urged investors not to “over-interpret” what was written in the update.

Unsurprisingly, several investors asked about what’s going on over in the US, given that Fevertree is taking direct management of its distribution network and marketing efforts in two weeks’ time.

Co-founder and chief executive Tim Warrillow said the firm – which has seen its share price soar more than 1,500% since its debut on AIM just over three years ago – had put in years of “painstaking but successful” ground work across the pond.

He added that Fevertree is yet to roll out its Madagascan Cola in the States while it builds the brand’s reputation with its flagship tonic waters, but it would look to do so next year.

The delay may surprise investors, given the sheer size of the US market for dark liquors, but the demand for clear liquor is far from weak: Warrillow estimated that the nascent US gin market is still twice the size of the UK’s, while vodka is even more popular.

-- Updates for share price and AGM notes --

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