Shares in upmarket mixer-maker Fevertree Drinks (FEVR: AIM) rally 10% to £28.50 as the company’s long-awaited trading update pleases patient investors.

Full year revenues are expected to be up 39% to £236m compared with growth of 45% in the first half and profits are seen ‘comfortably ahead of expectations’.

Investors and analysts have been on tenterhooks as this is the first trading update since the half year results last July.

Fevertree features in Shares’ ‘Top picks for 2019’ selection where we flagged the company in December at £22.10.

UK AND EUROPE SEE SECOND HALF IMPROVEMENT

Performance in the UK was ‘exceptional’ last year with sales up more than 50%, says the company.

Thanks to the prolonged heatwave and major sporting events, sales over the summer were ‘outstanding’ and demand remained strong over the Christmas period.

European sales got off to a slow start but momentum picked up sharply in the second half and finished the year up 24%.

US SALES GAINING PACE

However all eyes were on sales in the potentially game-changing US market after Fevertree revamped its business last summer.

Back in June the company took full control of its US operations in order to directly manage marketing, sales and distribution.

It then signed up Southern Glazer’s Wine & Spirits, the largest wine and spirits distributor in North America, as its on-trade partner across 29 states.

The good news for shareholders is that the firm has seen ‘significant progress’ since taking control of its operations.

Sales growth accelerated to 27% in the second half against 15% in the first half providing ‘an excellent platform for growth’ according to co-founder and chief executive Tim Warrillow.

‘A lot is riding on the business being a hit in the US,’ says Russ Mould, investment director at AJ Bell. ‘Many British companies have failed to emulate success at home in other geographical territories so it is pleasing to see Fevertree being one of the lucky few to have the right ingredients to crack the market.’

It’s still early days for Fevertree in the US but the mixer market is seeing the same trend towards premiumisation and focus on provenance as the UK and Europe.

On top of its well-established range of tonic waters for light spirits the firm has pushed into making mixers for the much wider dark spirits market which is huge in the US.

The shares have pulled back a long way from last summer's high of £39.34 but they are still trading on 45 times forecast 2019 earnings.

However if sales in the UK and Europe continue to grow at their current rate and sales in the US take off then analysts may be inclined to raise their forecasts which would see the rating fall, assuming no change in the share price.

Disclaimer: the author owns shares in Fevertree Drinks


Issue Date: 24 Jan 2019