Fevertree Drinks PLC (LON: FEVR)

Fevertree Drinks PLC is an FTSE AIM UK 50 index listed United Kingdom-based supplier of carbonated mixers for alcoholic spirits. Moreover, FEVR is engaged in the sale of carbonated mixers to hotels, restaurants, bars, and cafes, as well as supermarkets and off-licenses for retail purchase.

On 16 March 2022, the Company will release FY21 results.

Recent Trend of Dividend Payments

FEVR had paid an interim dividend of 5.52 pence per share on 22 October 2021, while the ex-dividend date was 30 September 2021. In comparison, FEVR had paid an interim dividend of 5.41 pence per share for an equivalent period of FY20.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects

• International Recognition: FEVR had added a significant achievement as it ended FY21 as the No.1 Tonic Water brand by value at US retail.
• Accelerated Recovery in On-Trade Sales: The On-Trade sales rebounded and remained encouraging in Europe at the end of Summer as the markets remained focused on attracting as many tourists as possible.

Key Risks 

• Federal Reserve Meeting: The Federal Reserve meeting scheduled for 16 March 2022 may result in the first interest rate hike since 2018. Thus, it may create pressure on global Equities.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.
• Increasing Freight rates: Any increase in freight rates could put pressure on the delivery cost, impacting the margins of the company.
• Shift in Consumer Behaviour: Reducing disposable income and lower consumer confidence could lead to a drastic change in consumer spending levels, affecting the top-line and margins of the Company.

Key Fundamental and Shareholders Statistics of Fevertree Drinks PLC. 

 Lindsell Train Limited is the most significant shareholder as it holds nearly 9.11 million shares as of 31 December 2021.   

FY21 Trading Update (for the 12 months ended 31 December 2021, as of 27 January 2022)

(Source: Company Filings)

• Strong Revenue: The Company had expected total year-on-year revenue growth of around 23% to £311 million during FY21.
• Divisional Performance: The UK-based revenue grew by around 15%, and US-based revenue rose by approximately 33% during FY21.
• Balance Sheet: FEVR has strengthened its balance with a significant improvement of around 16% in its cash to £166 million as of 31 December 2021.
  

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 15 September 2021)

(Source: Company Filings)

• Robust Top-line Business: The top-line revenue grew year-on-year by around 36% during H1 FY21.
• Profitability: The diluted earnings per share witnessed a year-on-year growth of around 17% during H1 FY21.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 15 March 2022 at 08:06 AM GMT, FEVR’s shares were trading at GBX 1,580.00, down by around 1.25% against the previous day closing price. Stock 52-week High and Low were GBX 2,871.00 and GBX 1,480.00, respectively.

On a daily chart, the stock price is sustained between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-days RSI stood at ~28.56, reflecting an oversold territory.

 

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative) 

 Business Outlook

The Company ended FY21 with top-line revenue ahead of the guidance provided at the H1 FY21 Results in September 2021. Moreover, FEVR had estimated revenue to remain between £355 million and £365 million in FY22 and margins to remain broadly flat in 2022. FEVR expects FY22 EBITDA ranging from £69 million to £72 million. The off-trade demand is expected to remain at higher levels, positively driven by the support from retailers and spirits companies. Overall, the Company remained well-equipped to generate consistent returns for the shareholders with the ability to capitalise on the substantial global opportunity.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong revenue guidance, decent financial ratios, dividend growth, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Fevertree Drinks PLC at the current price of GBX 1,580.00 (as of 15 March 2022 at 08:06 AM GMT), with lower-double digit upside potential based on 44.41x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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