Shares - - TALKING POINT -

From sell­ing its first bot­tles of tonic wa­ter in Sel­fridges in 2005 to fore­cast sales this year of £225m, the Fevertree brand has been one of great mar­ket­ing suc­cess sto­ries of the last decade.

Hav­ing spot­ted the de­mand for qual­ity mix­ers to go with pre­mium spir­its, the com­pany be­hind the brand has top­pled Sch­weppes to be­come the world’s lead­ing pro­ducer of pre­mium car­bon­ated mix­ers by re­tail sales value.

To­day it sells its prod­ucts in 70 coun­tries through both the ‘on trade’ to ho­tels, restau­rants and bars, and through the ‘off trade’ to re­tail cus­tomers via su­per­mar­kets and other stores.

In terms of prod­ucts, as well as half a dozen va­ri­eties of tonic wa­ter, lemon­ades and soda wa­ter for the white spir­its mixer mar­ket, the firm has launched gin­ger ales, gin­ger beer and cola to tap into the dark spir­its mixer cat­e­gory.

Greater avail­abil­ity of pre­mium mix­ers is good news for spir­its pro­duc­ers like Di­a­geo (DGE) which are try­ing to drive their cus­tomers to­wards high­er­mar­gin pre­mium prod­ucts, cre­at­ing a ‘vir­tu­ous cir­cle’ be­tween Fevertree and lead­ing brands.

In terms of geo­graphic spread, roughly half of the firm’s sales were in the UK last year and half were over­seas with the ma­jor mar­kets be­ing the US, Spain and Bel­gium.

This sum­mer the firm signed a new deal with South­ern Glaz­ers Wine & Spir­its, the largest wine and spir­its distrib­u­tor in North Amer­ica with $17bn in an­nual turnover, to dis­trib­ute its prod­ucts in the ‘on trade’ across 29 US states.

The US is the next area of ex­cite­ment for its in­vest­ment case. The Fevertree brand is best as­so­ci­ated with tonic wa­ter and ac­cord­ing to fig­ures from the Dis­tilled Spir­its Coun­cil the US pre­mium gin mar­ket alone was big­ger than the en­tire UK gin mar­ket so the sales po­ten­tial is large.

How­ever gin only ac­counts for 4% of US spir­its con­sump­tion while whisky ac­counts for 28% and vodka ac­counts for 32%, so the move into pre­mium gin­ger ales and cola opens up an even larger mar­ket.

With mar­kets around the world slump­ing this quar­ter and growth stocks out of favour, Fevertree shares have al­most halved from their Septem­ber peak.

There have been some mar­ket con­cerns that Fevertree’s growth has slowed in the UK, yet the ab­sence of any com­ment from the com­pany would sug­gest there isn’t any­thing se­ri­ous go­ing on – al­though we can’t say for cer­tain.

As­sum­ing the com­pany meets an­a­lysts’ es­ti­mates the shares are trad­ing on 45 times cur­rent year earn­ings which sounds high but if sales in the US do take off that ra­tio could fall sharply dur­ing 2019 should earn­ings fore­casts be up­graded.


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