viewFevertree Drinks PLC

Jefferies cites significant US potential as it hikes price target for Fevertree up to £40

Analysts at the US investment bank upped their price target to £40, but if US consumers really take to Fevertree’s drinks, it reckons shares could hit £60

fevertree drinks
Fevertree shares have climbed 50% so far this year to hit fresh all-time highs

US investment bank Jefferies has hiked its price target for Fevertree Drinks PLC (LON:FEVR) by a third, citing the huge potential for the posh tonic maker in the US.

The majority of Fevertree’s sales come from the UK, but the potential market across the pond is estimated to be seven times larger.

READ: Fevertree fails to upgrade expectations for first time since listing

To try to tap into this, the Chelsea-based firm has recently opened a US headquarters in New York, having previously relied on importer Brands of Britain to sell its tonics, lemonades and ginger beers in the US.

With the new direct management team now in place, analyst Edward Mundy reckons Fevertree is well-placed to take advantage of the nascent premium mixers market over there.

“Our proprietary bartender survey reinforces our confidence in the US growth opportunity,” wrote Mundy in a note.

“Conditions are in place for the growth of the premium mixers category over the med-term with (a) increasing focus on long drink mixability (b) appetite for premium gin/spirits to be mixed with premium mixers (c) consumer willingness to pay extra for premium mixers (d) sufficient physical space behind the bar to stock premium mixers.”

Not much US competition

Fevertree, particularly in the beginning of its journey, has faced very little competition from other premium drinks makers in the UK.

Mundy believes the market conditions are also “favourable” in the US, with the merger of Keurig and Dr Pepper Snapple – which owns Schweppes and Canada Dry – making for a “benign” trading environment.

He notes that Coca-Cola Company (NYSE:KO), a big threat to any drinks maker, doesn’t have a “sizeable” premium mixer brand either.

“The opportunity for premium mixers in the US is the largest growth opportunity for FEVR over the med-term given (a) the size of the US (7x larger than UK) (b) a market that is rapidly premiumising (c) significant disconnect between premium spirits and a commoditised mixers category (d) favourable industry backdrop,” added Mundy.

Price target up to £40 but could go higher

The analyst has upped his price target by £10 to £40, reflecting this “med-term opportunity” and accounting for some of the risk of tapping into a new market.

That said, Mundy reckons that shares in the AIM-listed firm could surpass £60 if it is able to “partially emulate” its success here in the UK.

Fevertree shares are broadly flat on Friday morning at £33.50. They were sold at 134p when the company floated on the junior market back in November 2014.

Quick facts: Fevertree Drinks PLC

Price: 1457.5 GBX

Market: AIM
Market Cap: £1.69 billion

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