Poor Christmas sales sees Fevertree lose its fizz

With the markets continuing to be difficult, the company is hoping to adapt in 2020 but earnings are still expected to decline

Article updated: 20 January 2020 11:00am Author: Joe Healey

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  • Group indicates profits would fall as the slowdown in UK consumer spending takes its toll on the higher-end drinks maker
  • Crucial UK market showed a slowdown in revenue for the year, falling 1% compared to 2018 levels
  • International markets showed positive signs with each segment posting double digit revenue growth as global premiumisation trend develops pushing total sales to 10% growth for the year
  •  Shares plunged 20% in early morning trading as market digests latest update
  • Recommendation: We don’t currently have a view for this stock but for contrarian investors who see a brighter future past market uncertainty, this company provides a growth opportunity for those willing to accept medium-higher risk 

Fevertree’s year-end trading update did not set a steady start to 2020 with the group indicating profits would fall as the slowdown in UK consumer spending takes its toll on the higher-end drinks maker. Its crucial UK market showed a slowdown in revenue for the year, falling 1% compared to 2018 levels. International markets showed positive signs, with each segment posting double digit revenue growth as the global premiumisation trend continues to develop, pushing total sales to 10% growth for the year. However, with lacklustre UK performance the group has guided that earnings for the year are expected to decline by 5%.

This is yet another update highlighting a difficult 2019 in markets. Brexit uncertainty has lagged consumer spending which, as expected, has had a knock-on effect on luxury items such as Fevertree tonics. It is likely these conditions are here to remain, particularly in the first half of 2020, so there are no signs of this slowdown dissipating.

Despite this short-term uncertainty, the company remain in a promising position with a solid balance sheet allowing them to invest in high-potential international markets. With the trend towards premium spirits continuing to grow on a worldwide basis, the company’s outlook may not be as dull as the share price investors have made it seem. The question will be how far Fevertree can maintain penetration into these markets and whether or not they can adapt to the economic conditions in the UK to return to growth over 2020.

We do not currently have a view for this stock, but for contrarian investors who see a brighter future past market uncertainty and believe international markets will continue to post robust growth, this company provides an opportunity for growth for investors willing to accept medium-higher risk.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

 

Joe Healey

Investment Research Analyst

Following his completion of the graduate scheme, Joe is an Investment Research Analyst covering equities. He holds a BA Hons Business Management degree and is currently studying towards CFA Level II after passing CFA Level I in June 2019.

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