So I see that Intu Properties (INTU) fessed up to the need for a massive cash raise as I mused upon recently, a disclosure which pulled down the shares over 5%. However, it is a bigger share price fall that has grabbed my attention. I do not think I have written on 'the world's leading supplier of premium carbonated mixers' Fevertree (FEVR) here before, but I have certainly been watching the stock for a while. Naturally, I felt foolish in not participating in the massive share price romp achieved in the years before mid-2018. However, being an investor more interested in value or growth at a reasonable price, the more than halving of the share price over the last eighteen months or so has piqued my attention a little bit more...
A latest twenty percent odd share price fall is centred on a shabby UK trading update (sales down 1% in the UK for FY19), which matters because Fevertree's home market still accounts for half its sales. There is no surprise that the company has blamed the lapping of 'exceptional comparators', nor that the 'UK experienced a challenging Christmas with the mixer category not immune from...weak consumer confidence'. You bet! For all the premiumisation chat, life is not the easiest out there and even though people like some nice drink and food at Christmas, everyone cuts their cloth accordingly at some level. And big competitors such as Schweppes or even some of the premium independent or supermarket brands are going to see an opportunity to attract shoppers looking for certain price points. The company is also talking about tough comps for the first half of this year (you may recall the Wimbledon sponsorship by the company superficially really worked out) and this feels like an attempt to get the rampant expectations built up in the year up until mid-2018 under a bit more control. However, there is still one card the company can talk optimistically about...and this is revenue growth overseas. After all there is a reason full year 2019 sales were up just shy of 10% despite the shabby UK performance.
Comments included 'significant progress in widening and deepening our distribution footprint' in the United States and positive noises about market share momentum in Europe, Australia and Canada from a lower penetration base. Naturally though all this costs money. Throw in the need to 'invest behind the brand' even in the UK and margins will be below hopes, meaning that earnings are set 'to decline by c.5% when compared to 2018'. Hmm. That is hardly a classic look for a growth stock. Ebitda margins are also expected to lag into 2020 too, with talk of 'c. 28%' when back in FY18 they were besting 32%. Whilst trading off on margins for growth is fine at a certain level, all of this is not going to help drive operating profitability materially higher than the current c. £60 million+ level. And with today's market cap still just over £1.8 billion, even when you adjust for a year-end cash position of c. £128 million, the prospective EV/ebit ratio is something along the lines of x25.
Fevertree better hope it can hawk a lot more bottles of its product around the world or that long-standing alleged suitor Diageo (DGE) comes a-calling. From my perspective, it might have a nice product but it is not yet a good enough GARP stock to buy without a belief in a speculative bid approach…which naturally are difficult to predict. I am sure the investment bankers are salivating at just the mere thought though...
Filed under: Fevertree, ADVFN, Versarien, Eve Sleep, Optibiotix, LightwaveRF, Joules, Bearcast
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