Fever Tree shares were up 0.3% to 1,528p in early afternoon trading on Thursday, following a reported 150% surge in off-trade sales compared to 2019 levels and strong momentum across its on-trade sales in its trading update.
The drinks firm announced that trading was in-line with expectations laid out in March, with US, Europe and international markets enjoying pre-pandemic rates of momentum.
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The company highlighted several recent launches, including its limited-edition Passionfruit & Lime Tonic in the UK, which boosted off-trade sales, along with its Sparkling Pink Grapefruit Soda in on-trade sales across the UK and European markets, on the back of a positive reception in the US.
Fever Tree commented that its innovation pipeline remained strong, with a series of new product launches scheduled for the coming 18 months.
The drinks group added that it was scaling down its shipping costs and delays with the operation of its West Coast bottling line in the US, alongside its East Coast line, which is ramping up production over HY1 2022 and is set to add further flexibility to Fever Tree’s network once fully operational.
“One of the main issues called out for rising costs is shipping to the US, it’s a key growth area for the group so servicing that demand is essential,” said Hargreaves Lansdown equity analyst Matt Britzman.
“Positive steps are underway to bottle directly in the US and therefore avoid a lot of freight costs, that partnership with a local bottling company is well underway and ramping up production this year.”
The company said the addition of its two bottling lines would also reduce the carbon emissions associated with its supply chain.
The firm highlighted an expected FY 2022 revenue in the range of £355 million to £365 million and an EBITDA between £63 million to £66 million.
“Management described trading so far as ‘solid’ and it’s certainly nice to see the group on track for guidance, but we must not forget that was downgraded in March which was met with a nasty market reaction,” said Britzman.
“The main issue this year, is that little to none of the 16% forecast rise in revenue is expected to drop into cash profits and whilst that’s hardly unusual, given the wider macro conditions meaning costs are rising for pretty much everyone, some of Fevertree’s operations should be getting more efficient.”
Fever Tree cautioned that it faced an industry-wide backdrop of inflationary pressures and logistics complications, most critically related to US shipping.
The drinks producer said its short-term remained uncertain, however the acceleration of its East-Coast bottling line would serve to mitigate some of the pressure from cost inflation.
“There are some positives for the longer-term investment case, growth outside of the saturated UK market looks promising and increased demand for premium alcohol and mixers looks to be stickier than first anticipated,” said Britzman.
“However, when investors are expected to pay 36 times earnings for a slice of the pie, in today’s world, those margins need to start moving in the right direction”