Premium carbonated mixers phenomenon Fevertree Drinks’ (FEVR:AIM) full year results are nothing short of fantastic, with sales up 66% to £170.2m and normalised pre-tax profit surging 63% higher to £57.1m.

Yet the high-flying shares in the posh tonic water specialist are lacking fizz today, softening 119p (4.4%) to £25.73 on the absence of further earnings upgrades.

Forecasts have been consistently upgraded since Fevertree floated on AIM in 2014 and were increased at the year-end update in January.

Investors who’ve grown accustomed to upwards earnings revisions are a little disappointed this morning and the share price fall highlights the risks involved with stocks trading on gravity-defying ratings.

Fever-Tree 500ml rangeEXCEPTIONAL PERFORMER

Tim Warrillow, co-founder and CEO, says: ‘It has been a year of significant progress. We have continued to see strong growth across all our regions with the UK once again delivering an exceptional performance culminating in Fever-Tree ending the year as the leading mixer brand at UK retail’, having overtaken Schweppes.

‘Whilst this is a notable achievement, there remains a significant opportunity in front of us across all our regions as Fever-Tree continues to drive the evolution of the mixer category.’

Turning to the outlook statement, Warrillow says: ‘We have had an encouraging start to 2018 and remain confident that we are increasingly well positioned to deliver further growth across the business.'

Shore Capital’s Phil Carroll writes: ‘We see this tone of commentary as the usual cautious approach by management although given the group's rating it may be seen as slightly disappointing to some investors.’

Carroll also highlights gross margin dilution from 55.2% to 53.5% due to the decision to introduce a new, bespoke glass bottle in the second half of 2016.

DIVIDEND DISAPPOINTMENT

An asset-light business with a largely outsourced production model, Fevertree is copiously cash generative and raises the total dividend from 6.25p to 10.65p accordingly.

This is slightly below the 13p Shore Capital was looking for. ‘The dividend increase is a little disappointing for us given net cash has increased to £50.9m from £26.9m but it is not hugely material in the grand scheme of things,’ adds Carroll.

Fevertree Drinks - MAR 2018GLOBAL GROWTH TEAR

The absence of additional earnings upgrades notwithstanding, it would be churlish to forget that Fevertree Drinks is a fantastic growth business with a terrific track record and a vast global opportunity ahead.

Fevertree reports ongoing strong growth across all regions, channels, flavours and formats, the UK business being the key driver.

The AIM marvel’s home market shot the lights out over the festive period as consumers guzzled gin, vodka, rum and whisky washed down with its growing range of high-end mixers.

Fevertree's Clementine Tonic proved a big hit, while the launch of its Smoky Ginger Ale and Spiced Orange Ginger Ale tipples has extended Fevertree’s range of mixers for dark spirits.

In the US, the group’s second largest single market, sales increased by 36% on a constant currency basis.

Fevertree says the North America’s premium mixer market is still at a relatively early stage ‘but the trend towards spirits premiumisation and the increasing focus on simple long drink mixability is accelerating and represents a significant opportunity.’

Carroll at Shore Capital says that while the business has taken strong momentum into the current year, he continues to view the risk trade-off between the company continuing to beat market expectations and the ongoing potential for growth as preventing him from being more positive at this stage.

Investec analyst Nicola Mallard reiterates her ‘buy’ rating and increases her price target from £27.75 to £30.10, although the analyst is making no changes to her forecasts as she had already reflected the strong full year sales growth in a January 2018 upgrade.

For 2018, Investec estimates £59.4m pre-tax profit and earnings per share of 41.1p (2017: 39.8p), ahead of £64.2m and 44.4p for 2019.

On those estimates, Fevertree’s shares are swapping hands on frothy prospective multiples of 62.6 and 58 times for this year and next.


Issue Date: 13 Mar 2018