Already down 40% year-to-date, shares in Fevertree Drinks (FEVR:AIM) softened a further 0.6% to £16.17 despite the up-market mixer brand serving up better than expected results for 2021 and proposing a 42.9p special dividend in a show of confidence.
Although the premium mixer business continues to perform well, a sharp increase in commodity prices exacerbated by the conflict in Ukraine has prompted management to lower adjusted EBTDA guidance for 2022 to between £63 million to £66 million, down from the £69 million to £72 million range outlined in January.
Accordingly, Numis Securities has downgraded its 2022 EBITDA forecast for the posh tonic to ginger beer purveyor by 9.3% to £64.4 million and has also trimmed its 2023 EBITDA forecast by 5.6% to £80.6 million.
Though the latest downgrades are disappointing, Fevertree continues to perform well and has left revenue guidance for 2022 unchanged at between £355 million and £365 million.
GLOBAL GROWTH
For the year to December 2021, revenue bubbled up 23% to £311.1 million with sales growing strongly across all markets, but gross margin reduced from 46.2% to 42.1% due to higher logistics costs caused by ‘unprecedented global supply chain disruption’.
The UK business delivered 15% sales growth to £118.3 million, benefiting from a stronger On-trade performance and stable Off-trade sales.
And in the US, the promised land for Fevertree investors, revenue frothed up by 33% to £77.9 million amid progress across both the On and Off-Trade channels.
Indeed, Fevertree grew to become the number one ginger beer and the number one tonic brand by value in the US last year, surpassing Goslings and Schweppes respectively.
Closing the year with net cash of £166.2 million, Fevertree proposed a 2% increase in the full year dividend to 15.99p per share and also proposed a 42.9p per share special dividend to reflect ‘our financial strength, ongoing cash generation, as well as our confidence in the continued execution of our strategy’.
Co-founder and CEO Tim Warrillow commented: ‘Whilst the tragic situation in Ukraine has resulted in significant uncertainty in relation to our input costs in the short term, the long-term global opportunity for Fever-Tree remains substantial and we are as confident as ever in the brand’s ability to capitalise on this.’
WHY NUMIS REMAINS BULLISH
Numis reiterated its ‘buy’ rating on Fevertree, though the broker also lowered its price target from £30 to £27 to reflect downgraded forecasts.
‘Whilst there is understandably a degree of uncertainty around near term margins we believe there is a clear path to strong, sustainable recovery in margins underpinned by leveraging its nascent international bottling footprint,’ explained analyst Damian McNeela.
‘Combined with the very substantial growth opportunity we think the current valuation is compelling.’
