Shares in Fevertree Drinks (FEVR:AIM) sank 9% to £23.10 on Thursday as the premium mixer brand served up reduced profits for 2020 and reintroduced sales growth and margin guidance targets for 2021 disappointed the market.

Light guidance overshadowed a resilient 2020 performance from the upmarket mixer supplier, which delivered material share gains in the Off-Trade (retail) in all markets as well as a strong cash performance to support a 4% full year dividend hike to 15.68p.

GUIDANCE FALLS FLAT

London-headquartered Fevertree expects to deliver 12%-to-16% revenue growth in 2021, below the near-17% increase previously implied by consensus.

The posh tonic-to-ginger ale supplier sees gross and EBITDA margins ‘consistent’ with the 46.2% and 22.6% generated in 2020 respectively; the EBITDA margin guidance is significantly below the 25.8% called for by consensus.

Despite widespread On-Trade closures (pubs, bars, restaurants, hotels), Fevertree limited 2020’s annual sales decrease to 3% thanks to a very strong performance in the Off-Trade channel.

However, pre-tax profits fell 28.9% to £51.6 million on a cocktail of lower sales, ongoing investment in the brand as well as higher amortisation and depreciation charges.

Last year’s successful launches included the new Premium Soda range in the UK, specifically targeted at the vodka category and Sparkling Pink Grapefruit in the US, a tipple targeted at the fast-growing tequila category.

SPIRITED SHOWING

Charismatic co-founder and chief executive Tim Warrillow commented: ‘Our performance in the Off-Trade was especially strong, exceeding our expectations across all our regions.

‘Numerous periods of lockdown during the year encouraged increased consumer interest in premium spirits and stimulated excitement about mixing drinks at home, attracting more households and new consumers to the Fever-Tree brand than ever before.

‘Consequently, we have increased our penetration in the UK, driven value share gains in the US, and Europe, and gained real traction in Canada and Australia.’

Danni Hewson, financial analyst at AJ Bell, remarked: ‘Fevertree could have seen it’s bubbles burst as global lockdowns forced hospitality businesses to shut their doors.

‘Instead, clever marketing, exporting and a focus on the home drinker has helped offset lost trade. The premium mixer became the drink du jour for many in the UK as the gin craze boomed. Now it seems the rest of the world is also succumbing to its fizz, with growth in the USA, Australia and Canada.’

Encouragingly, Fevertree flagged a very positive start to 2021 in the Off-Trade across all regions, most notably the UK and US, though it expects some of the Off-Trade demand to switch to the On-Trade as it begins to re-open.

‘Our confidence in the future is underpinned by the long-term trend towards premium spirits and long mixed drinks which accelerated during 2020 and a trend that Fever-Tree, with our category leadership position, range and relationships, remains uniquely placed to continue to benefit from,’ added Warrillow.

Liberum Capital reiterated its ‘buy’ rating on the soft drinks group with an increased price target of £27.40. ‘We continue to expect Fevertree to be a winner once On-Trade re-opens,’ insisted the broker.

‘The strong Off-Trade share gains achieved over 2020 are reflective of the consumers’ desire to recreate premium long mixed drinks and cocktails at home, and should translate into more On-Trade sales once lockdown ends.’

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Issue Date: 18 Mar 2021