Fevertree Drinks Share Discussion Threads

[joemillion] 27/4/2020 16:47

I've had worse days.

[aimingupward2] 27/4/2020 16:27

Well, that's the HSBC target reached in just 3 days, albeit not held at end of the day.

[llama1978] 27/4/2020 16:22

£20 tomorrow??!

[llama1978] 27/4/2020 16:07

Oh it’s come back. Ignore me.

[llama1978] 27/4/2020 16:07

The graph seems to have broken. Probably the shock of getting up to almost £18.20.

[sogoesit] 27/4/2020 12:20

Certainly, price and gross margin will be the lead indicators.
Problem with changing price positioning is that, strategically, it loses the "premium" placement concept.
Many businesses fail when they change strategy (from luxury to commoditisation).
So, if we see that happen it won't just be the share price at risk but the company.

(£20 would be a trailing 40x multiple and, at forward 45p £20 would be about 45x)

[hpcg] 27/4/2020 11:49

Sogoesit - yes, £20 was my line in the sand so to speak, though all dependent on the chart; I'm not shorting a runaway train. My observation is that companies rarely go back to previous multiples on a second attempt. This is logical if you think about it. A 70 multiple requires a decade worth of continuous substantial compounding. Company performance negated that thesis, and genuinely it seems very unlikely. So a 35 multiple is still generous but prices in much more moderate growth, 5 years of 15% for example. UK looks to be ex-growth so this is dependent on the RoW, and also requires UK does not meaningfully shrink in either volumes or margin. I see price more likely to fail than volume, not least because a lower price will support volume.

I don't see any value in shorting at this level, its a coin toss. Add another 20% and that 20% itself is a margin of safety. Having said that, at these levels a tactical short before earnings, especially if the chart has been weak, has a good balance of risk.

[christh] 27/4/2020 10:37

heading for £20.
Its pushing higher, today hit nearly under £18 so far, so going places.


people sipping fevertree tonic water with gin at home.

consumption increase globally but mostly in UK and USA.

[llama1978] 27/4/2020 08:43

The thing is, if you want to win mid term when you think things will do well, you have to get in before everyone else wants to get in. And with this company fever pitch occurs. If you wait until July results and they show off trade growth of 100% yoy in the states, you’ve missed your chance.

[sogoesit] 26/4/2020 12:42

It's the future, feverfan, what do any of us know ;-)?

Yes, that's the key issue to resolve; what is the market's perception (matched against our own)?

[feverfan] 26/4/2020 11:51

Thanks for your thoughts sogesit. I’m prepared to value it at that because I can see the opportunity but I’m not sure the market is going to anymore. Particularly with covid going on - so I thought valuations in the 30s vs 40s felt more what the market would pay for the potential promise of growth. But what do I know! :)

If they keep investing, which I think they will as it’s the right thing for the company (and they’ve suggested in the -webinar slides they would) - I think this will hurt eps short term and mean more 40-45p EPS rather than my 45p. Then for me the valuation gets tight, on a short term basis.

Question is whether the market is willing to take a long term view; until covid clears I’m not sure it will

[sogoesit] 26/4/2020 10:00

Interesting post, feverfan, thanks.
I think your 45p for next year is in line with previous management guidance. They guided about 50p for last year and they hit that (based on "investment in the US market"). So a 45p EPS for next year, given continuing investment, looks about what some of us were saying pre-prelims.
Does it cover, unpredictable, COVID risk? Who knows.

I think your valuation at £17 looks low. This can be a momentum stock (as well) so it can get "carried away". I wouldn't be surprised to see it carried away to 50x or even 70+x, as it has in the past, over the next year to two years. This would be based on US growth expectations, a market that has been "promoted" as being ten times the size of the UK.
Being "cautious" and awarding it 45x makes a possible £20.25. The 50x plus obviously more. (£20 is one poster's position to short from ... i think it was hpcg).

Anyway, a retrace on the cards and time for speculation between now and July, so looking forward to that for accumulation.

[feverfan] 25/4/2020 13:56

So...I’ve been running some scenarios. For context, I’m a huge fan of company and product, but sold 75% of my long term holding yesterday based on the following (have followed it up and down from £11 to £40 back to £8 and sold yesterday mostly at £17). I expect them to do well over a 3yr horizon, but America isn’t quite picking up quick enough to justify the multiple now with Covid. Speaking to the CEO at the AGM last year he was keen to grow America properly, not rush it. He didn’t strike me as in a rush, which gave me comfort under normal circumstances, but covid will delay these plans significantly, and I’d love to buy back in but I think the price may have got ahead of itself slightly this week.

Takeover: I feel the takeover possibility is low at present (who has the guts to spend £2bn sitting /won’t be able to borrow for it). Now I’ve typed this Sod’s law, there’ll be a takeover offer soon ha!

Cash: Balance sheet I love, but even if I take the £128m cash, add the £30m receiveables/ payables surplus to give £158m, between 116m shares that’s £1.36 per share, or about 8% of the £17 price today. So even if they gave away half of that as a dividend, it’s 4%. Hardly worth shouting about. Similarly the 15p dividend is irrelevant.

FY20 outlook: I’ve run a load of scenarios in excel, breaking down off vs on trade, country by country (this data is helpfully in the results slides). My current mid case prediction, and it’s just a prediction, is 60% reduction in On trade, and growth of 30% Off trade. I haven’t split this by country as, as a UK person I have no clue how trends look in America other than the data they’d given about 70% rises off trade in the stockpiling weeks, which have now moderated down to 50% if I recall, and they expect to moderate more. So 30% overall on the year growth for off trade felt a reasonable assumption. And my 60% reduction in off trade is based on jan feb March being flat on last year (assumed flat to smooth out the fact US and Europe was growing, but I suspect UK was broadly flat), then a 3m lockdown. And then gradual easing back of sales. This is the super hard bit to predict, no one can predict how soon bars will return to normal so I’ve had to make assumptions here, and broadly after running some scenarios end up at 60% hit.

Overall Revenue: Comes out at £234 (£260 PY), only a 10% hit. This feels fairly optimistic when I write it like that but let’s be optimistic - 55% of their business is off trade so thankfully more than half of their business will grow as a result of covid, I just don’t think it will grow enough to compensate for the bars being shut. So overall there has to be a revenue drop in my scenario.

EPS: if I assume 30% EBITDA margin, I get £70.5 EBITDA (£77m PY). And then 46p EPS. 31% margin (if they improve margins this year?) gives 47.5 EPS. All of my scenarios end up with about 42-48p EPS. Let’s say 45p for argument.

Valuation: At £17, with 45p EPS that’s a forward PE at end of FY20 of 38.

Summary: America will do well I think long term. But I’m going to wait for the July trading update to see how things have gone H1 so I can refine my model. But for now - risk reward is too high for me I think, and this hurts saying it because I’ve had to take losses. 38 PE for a company that was not growing, and having seen how low the market took it in jan/ Feb, I’m a bit more cautious now paying that much. Long term I genuinely see the US working and listening to the webinar was very impressed with Charles gibb. But I don’t think this was ever going to happen overnight, and the market is pricing it like it is. Also remember UK revenues are £133m vs US £47.8. US is almost 3x smaller...so it’s got to grow a lot faster! Even with 50% growth let’s assume if covid hadn’t hit, they’d only have got up to £72m US so still half of UK. It’s going to take a good few years I think to catch up but after that I have no doubt the sales will be impressive and keep going. The opportunity genuinely is huge.

Brokers: I don’t pay much attention, but HSBC was an outlier by some way.

Would love to hear other’s thoughts. I’m not short, and still have a small holding. I think at £12-14 I might be tempted to buy back, but having got caught up in Fevr fever and paid the price once by letting myself get carried away with the valuation, I’m now a bit more cautious! I’ll be watching closely!

[trying2getrichquick] 24/4/2020 20:25

Oh to go back to 14 Sept 2018 at £38.63

[joemillion] 24/4/2020 16:43

Bought back in this morning (been out since 2018 when share price was over £32). Looking very undervalued and hoping for a 40% rise within 2/3 months. We will see...

[rampmeister] 24/4/2020 16:32

Sold these in February last year for small profit. Pleased to be back in at 1475p. RNS tells me they are adapting well to the vagaries of the US market by selling range of ginger drinks. 30% rise in US revenue says they are on track in what will be their major market.

RM

[dround87] 24/4/2020 13:53

Well held llama should be pushing back on your average now

[sogoesit] 24/4/2020 13:18

I raise my glass to you llama.
Downed in one. Refill!
Cheers.

[llama1978] 24/4/2020 12:22

I raise my target price to £35. Hold.

[trying2getrichquick] 24/4/2020 11:45

24 April 2020

HSBC RAISES FEVERTREE DRINKS PRICE TARGET TO 1860 (1330) PENCE - 'BUY'

[aimingupward2] 24/4/2020 09:51

HSBC raises it’s price target for Fevertree from 1330p to 1860p - quite a jump up!

They’re probably still behind the curve, though, even with that.

EDIT: Another day like today and the 1860p target will have been reached !!

[dround87] 24/4/2020 07:03

Boots only interested in making them a concession I think

[growthpotential] 23/4/2020 23:26

I've been consuming Diageo's Gordon's Sicilian lemonade with the fever tree refreshingly light Indian tonic water ...