Fever-Tree is trying to break America. It’s share price needs the move to work, but can it?
Fever-Tree in the US: will it be like the Beatles or Tesco?
I think it was Ringo Starr who said that in advance of the Beatles’ first press conference in the US, the American media were planning to tear them apart. But the Fab Four, with their irreverent humour, won them over: “What do you think of the comment you are nothing but a bunch of British Elvis Presleys?” Doing his best Elvis impression, and with a curl of the lip, Ringo replied: “It’s not true, it’s not true.”
Had John Lennon said we “we are bigger than Jesus” then, instead of a couple of years later, maybe the Beatles would never have made it in America.
Tesco, by contrast had a terrible experience. Its Fresh & Easy stores proved about as popular in America as Tommy Steele. Tesco made a number of mistakes in its US bid, among them, trying to foist a new way of shopping on Americans, more familiar with the Mom and Pop stores, where service was the key. But Tesco was also unlucky, and such bad luck is rarely mentioned, because its American move coincided with the deepest US recession in around 80 years. Maybe, if instead, it had made the bid five years earlier, or five years later, it would have been a different story.
The question is, can Fever-Tree pull it off? Can it create the British mixer drink invasion, or will it join a long list of British attempts to break America in the metaphorical corporate graveyard?
If you had invested in the company at the time of IPO, in 2014, you would be sitting on a nice profit: shares rose from 134p to 2,442p as I write.
There is a good reason for growth in the share price, revenue has risen enormously, too.
Then again, the gin market has enjoyed an extraordinary run. Gin and tonic has been transformed from the tipple of a largely older generation to become super trendy.
My own particular Fever-Tree journey was unusual. As the drink became more popular, the share price rose. I started sampling the drink to try and find out why the share price had done so well. And I got it immediately.
There isn’t one gin and tonic anymore, there are a myriad of different flavours, and mixes, and on a cool summer’s evening it can go down rather well.
As you would expect with such extraordinary success, markets put a whopping PE ratio on the company, in anticipation that the growth would continue.
There is a snag though. That kind of growth rate can’t continue indefinitely. In the last six months, UK sales rose a ‘mere’ five per cent, total profits increased by an ‘insipid’ eight per cent!
Truth is, the UK market is close to saturation.
Shares are down 38 per cent since the all time high set last September.
With a fall like that, some investors might think a bargain has been created, but then again the PE ratio is still in excess of 40.
So the company needs international expansion, especially in the US, where the company is putting in the bulk of its effort.
But according to Statistica, the UK gin market is the biggest — revenue $3.6 billion versus $2.8 billion in the US.
Of course, Fever-Tree isn’t only about gin, there is the potential for Fever-Tree ginger ales to appeal to US whiskey drinkers, for example.
Or there are Tequila drinkers.
The opportunity for the company is enormous, but then the opportunity for Tesco in the US was once enormous too.
An investment in the company is a punt on whether the US, or maybe a handful of smaller markets, can be converted to Fever-Tree in much the same way the Brits were.
Will US drinkers say of Fever-Tree, 'we love it, yeah, yeah, yeah' or will they say ‘return to sender"?
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees