Fevertree Drinks (AIM:FEVR) PLC has had its rating downgraded by Berenberg to 'hold' from 'buy', with the German bank's analysts citing external margin and cost pressures.
In a note to clients, the Berenberg analysts said while their view on the mixer drinks manufacturer was "largely unchanged", their confidence in Fevertree's near-term earnings profile had "diminished" due to two factors - increasing challenges in the UK on-trade and a lack of visibility on cost pressures.
The analysts pointed out that the UK on-trade was a core part of the Fevertree story but said it was under "increasing pressure", with energy bills putting significant pressures on operators, reducing discretionary spending weighing on footfall, and the emergence of novel offerings by competitors, such as Happy Drinks Co, taking market share.
As far as margin visibility was concerned, they noted that one of the core attractions of Fevertree was its outsourced business model, which has allowed it to earn "market-leading" returns on capital. However, it also said this limits visibility in a time where "significant volatility" on input costs exists outside of the company's control.
"With these two factors at play, we think that there are limited positive catalysts in the near term," the Berenberg analysts concluded, cutting their rating and lowering their share price target for Fevertree to 1,000p from 1,100.0p.
In afternoon trading on Friday, Fevertree shares were 1.1% lower at 905p.