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[redartbmud] 20/4/2018 19:28

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Norris shorts Fever-Tree, says shares could halve
Fund manager Barry Norris bets against mixer drinks maker whose shares have risen more than 16-fold in less than four years.
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by Daniel Grote on Apr 20, 2018 at 14:06
Norris shorts Fever-Tree, says shares could halve


Barry Norris, manager of the Argonaut Absolute Return +
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fund that has enjoyed a revival in fortunes over the last year, is betting against Fever-Tree (FEVR +

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), the stock market darling whose shares have risen more than 16-fold in less than four years.

Norris has taken out a 'short' position on shares in the mixer drinks maker, saying the stock could fall by 'at least' 50% if his prediction of a dramatic slowdown in sales growth is borne out.

He has pitted himself against a host of top-performing rival fund managers who owe a large chunk of their returns to the huge rally in the stock.

Independent (IIT +

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), the top-performing UK-focused investment trust of the last five years, whose shares have rallied 233.5% over that period, has a 10.4% position in Fever-Tree, according to the latest portfolio data, published at the end of January.

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, the best-performing open-ended UK smaller companies fund of the last five years, has a 5% position according to February's factsheet, which has helped towards a 176% return.

Shares in Fever-Tree have risen by more than 1,500% since floating at 165p in November 2014. Today the shares were changing hands at £26.85, down from a peak of £29 in March.
'The growth rate has to slow down'

Norris (pictured), who owned the shares two years ago, has now turned against the stock, arguing the shares' valuation left no room for error, just as the company's heady growth in UK sales was likely to slow down.

'When you start on a valuation of 18 times sales, a 60 times price-earnings ratio, that leaves no room for execution error,' he said. 'There's a lot of growth already factored into the valuation.'

In an update to investors in his fund, Norris said UK sales growth, which the company estimated at 96% for 2017 in a January trading update, was likely to slow down.

'My basic contention on this stock is the growth rate simply through the law of large numbers, has to slow down and that the company will struggle to grow into its multiples,' he said.

He said Fever-Tree's UK sales were particularly vulnerable as a result of the company's move towards supplying its products to supermarkets and a workforce which was incentivised towards sales rather than profits. This risked damaging the brand and leaving existing customers over-supplied, Norris argued.

'A couple of years ago you could only really buy it in high-end bars and restaurants and it was very good in terms of protecting its brand,' he said.

'But if you can buy it discounted in Sainsbury's the brand value of the company is not going to sustain itself in a way it would have done if it was more exclusive.

'When brands meet the shopping mall they often die and I think that's going to happen with Fever-Tree.'

Norris claimed the level of sales growth delivered by Fever-Tree to date meant the company was risking oversupplying the market, meaning future growth was likely to tumble.

'If we look at the sales force with Fever-Tree and the management, they are all highly incentivised on sales rather than profitability.

'So the chances they have stuffed the channels in the UK with as much Fever-Tree product as they possibly can and that their customers are overstocked with Fever-Tree products I think is quite high,' he said.

'Clearly the company in the UK is not going to grow 96% in 2018. The question is what is that number and is there a chance that the number not only slows down to very low growth but potentially turns negative on the back of overstock of their products?

'Certainly if that happens the share price is going to be down at least 50% if not more.'

red

[madmix] 20/4/2018 14:32

AMER does look interesting, I agree. Haven't actually bought any yet though.

Well done on SQZ, Hydrus.

[hydrus] 20/4/2018 12:45

Big are you in AMER? Seems to be doing well now. Like SQZ cheap.

[winchcombe] 20/4/2018 11:26

Malcy (16/4/2018) gives Amerisur (AMER) his most positive ever review:



Revenues flowing and more to come, cash rich, zero debt, Directors buying this week, fully funded 14 well drilling program for 2018, etc.

Possible 10+ bagger this year.

[hydrus] 19/4/2018 13:02

Been adding to SQZ in the sixties, seventies and eighties (in reverse order as price dropped) - thought i was going mad but finally appears to be moving forward.Not an oil expert but the projected cash flows are insane

[janeann] 19/4/2018 12:30

no evidence apad; but once instructed they manage through thick and thin. and I wanted a buy and forget tyoe stock - missed the boat on csn - watched it gently rise from 389 to 4.10 ish. annoyed at that and stj seemed on a decent dip.

[apad] 19/4/2018 12:11

janeann - do you have evidence that wealth managers don't suffer in a bear market.
I had the same thought about IGG as Big7 - then I had the thought that people bet on falls anyway, so it is perhaps always profitable when there is volatility?

apad

[apad] 19/4/2018 08:34

I think I am pleased that I decided to sell WEIR. Don't like grandiose acquisition ambitions - prefer focussed, special expertise.
apad

[janeann] 19/4/2018 08:29

big7 - STJ - more a et on people needing someone o manage their wealth as situations get more complex; regardless of whether the bear takes over

[attrader] 18/4/2018 21:23

Bought few Naspers today. It is a play on their 30% stake in Tencent and is trading at significant discount.

[big7ime] 18/4/2018 20:09

Betting on a continued bull run then janeann
Personally I sold all my heavily mkt reliant investments in Jan and last yr.
My focus now is on copper, oil and oil dependent, utility and certain stand out non cyclicals as far as you can assume n c
I do like BVXP
AMER looks ridiculously cheap now and the directors agree, 3 buying significant amounts this week and a good chart set up. It's easy to work out what the co is making at present after the results going by the current price of oil which is why these should motor from here
Sometimes a good buy is glaringly obvious and the share price takes a while to achieve fair value, that gives us plenty of time to take advantage
GTC has been rising nicely, maybe it's time for ntq to catch up APAD
I still prefer GTC, now above 30. I think it will be back to its highs above a pound before long

[janeann] 18/4/2018 10:54

Bought a few STJ - reasonable dividend, a btfd time, and I don't see demand for their services decreasing, along with several decent broker upgrades.

[gsbmba99] 18/4/2018 10:38

From BVXP thread - At the results presentation, Peter had said that Siemens were excited about the potential for high sensitivity Troponin to be used as a more regular test of cardiac disease monitoring/progression beyond just A&E. This research would appear to support this view. This, I believe, was done using the Abbott hsTnI test. "Higher hsTnI levels are associated with the underlying burden of coronary atherosclerosis, more rapid progression of CAD [coronary artery disease], and higher risk of all‐cause mortality and incident cardiovascular events." The clinical implications are interesting: 1) "High‐sensitivity cardiac troponin I is potentially a surrogate biomarker to monitor therapeutic responses in patients with coronary artery disease" and 2) "Whether interventions aimed at reducing its levels are associated with improved outcomes requires further investigation"

[apad] 18/4/2018 08:57

😊

Always going to be a news driven share, dacian.

[apad] 18/4/2018 07:35

Little orphan NTQ - excellent rns this morning.
Looks like my decision to hold will come good.
Gorblimey, up 30%!
apad