Shares in up-market mixer maker Fevertree Drinks (FEVR:AIM) were out of favour with investors, dropping 7.5% to £21.83 after its full year trading update left a sour taste. The fall in the stock price came on top of a 6.5% decline last night, taking the loss for the week to more than 14%.
While its 2021 performance was respectable, the outlook for earnings this year fell short of expectations as the firm warned of major cost headwinds.
SALES BOUNCING BACK
Revenues for the year to last December are forecast to be £311 million, a 23% increase on the prior year and slightly ahead of the previous guidance thanks to continued strength in the Off-trade.
Sales in the US, the promised land for Fevertree investors, grew 33% to just under £80 million with the firm’s ginger beer taking the number one spot in its category among retailers and its tonic overtaking Schweppes for the first time in December to become market leader.
The UK remained the group’s largest market with sales up 15% to £118 million last year following a 59% surge in On-trade sales as drinkers flocked back to pubs and bars in the second half.
Sales in Europe were ‘significantly’ above forecasts at £88 million as tourism picked up, but Rest of the World sales were slower as the firm lapped a period of stockpiling by distributors in the second half of 2020.
HIGHER COSTS
For this year the firm is forecasting sales of between £355 million and £365 million, which would mean growth of over 15% at the midpoint of estimates, driven by higher levels of Off-trade consumption than before the pandemic and a steady recovery in the On-trade.
However, margins are likely to be flat as the firm faces ‘more significant cost headwinds in 2022’ than it had previously anticipated, meaning EBITDA (earnings before interest, taxes, depreciation and amortization) will be between £69 million and £72 million.
Analysts at Numis trimmed their current-year EBITDA forecast by around 2% to £71 million but remained positive on the stock, arguing the firm’s ‘growth trajectory remains intact’.
In contrast, the team at Liberum cut their recommendation to hold from buy and cut their price target to £23 from £25.30 citing uncertainty over a recovery in margins which could leave the valuation looking 'stretched'.
