- Partnership to put fizz into US growth
- Molson Coors to buy 8.5% stake
- £71 million buyback to come
Shares in Fevertree Drinks (FEVR:AIM) fizzed 20% higher to 801p after the premium mixer company announced a transformational strategic partnership with beer maker Molson Coors (TAP:NYSE), one that represents a big endorsement of the brand Fevertree has built up across the Atlantic.
Not only will the tie-up drive the next stage of Fevertree’s growth stateside, it will improve the tonic-to-ginger beer seller’s earnings quality and cash generation, thereby increasing the scope of potential shareholder returns from the company in future.
Reflecting Molson Coors’ belief in the brand’s growth opportunity across the pond, it will acquire an 8.5% stake in Fevertree for £71 million, which Fevertree will return to shareholders through a share buyback beginning in February.
TONIC TIE-UP
One of Shares’ key stock selections for 2025, Fevertree has announced a strategic partnership with Molson Coors for the exclusive sale, distribution and production of Fevertree in the US, where it has grown to become the number one tonic and ginger beer brand.
Fevertree will now use Molson Coors’ commercial power and enhanced marketing in the US to drive the next stage of the brand’s growth and the deal is transformational in terms of the company’s cash generation and return on capital employed profile.
The Coors Light-to-Carling brewer will take over Fevertree’s US operations, while Fevertree will receive a share of the profits of the US operations as a royalty, which should materially improve over time.
Historically, Fevertree’s growth in the US has required significant working capital investment, but this cost will now all be on Molson Coors’ books.
WHY WARRILLOW IS EXCITED
Fevertree’s co-founder and CEO Tim Warrillow explained that with a national network providing ‘significant scale and muscle, alongside its proven track record, supply chain expertise and clearly stated strategic desire to drive the future of their business beyond beer, Molson Coors are the ideal long-term partner to take the Fevertree brand to the next level across the US.’
SLIGHT SALES MISS
An accompanying trading update for the year to December 2024 showed why Fevertree needs a partner to pep up its growth, revealing 1% growth in annual revenue to the best part of £368 million.
That was slightly below consensus expectations of 1.7% growth, although the company still expects to deliver a ‘strong uplift’ in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) for the full year, in line with expectations.
For 2025, Fevertree guided for low-single-digit group revenue growth alongside a short-term impact to earnings as the transition happens and the combined entity increases marketing investment in the US.
EXPERT VIEWS
‘With Molson Coors taking an 8.5% stake in Fevertree, it provides a long-term backer and a potential eventual acquirer of the group,’ noted Panmure Liberum.
‘Guaranteed profits for five years and no working capital investment requirement in the US should free up significant cash flow for the group to return to shareholders. We expect the group to significantly re-rate after today’s announcement to reflect this.’
Russ Mould, investment director at AJ Bell, said the Molson Coors news may well restore some of the fizz Fevertree shares enjoyed after their listing 10 years ago.
‘From Molson Coors’ side, shifting consumer habits means there is an incentive for it to diversify its offering and it’s significant that it has seen Fevertree as a means of doing so. It shows that for all Fevertree’s problems with cost and supply chain issues in recent years, it has built something meaningful with its range of premium mixers.’
Mould added: ‘The terms of the agreement with Molson Coors reduces demands on Fevertree’s capital and should power its growth in the US thanks to the beer maker’s heavyweight distribution and marketing capabilities.
‘While it banks its share of the profit, Fevertree will have newly freed-up cash flow which can be potentially returned to shareholders or invested in expanding in other parts of the globe.
‘Molson taking a meaningful stake in the business also underscores its commitment to the partnership and could even translate into a full takeover of the group in time if the arrangement works out well.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.