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Is Fever-Tree losing its fizz?

Daniel Lane

Daniel Lane - Fidelity Personal Investing

I had some friends round at the weekend and noticed on my trip to the shops beforehand that I’ve been well and truly swept along with this ‘premiumisation’ wave. But I went straight for the craft beers and Fever-Tree mixers more out of social pressure than love for the drinks. In truth, I felt like this is what is expected now and the slightly higher prices were a small price to pay to avoid judgement.

None

Eye-rollingly middle-class I know, but what would you do?

If today’s results from Fever-Tree are anything to go by, you’d have done the same, guilt-driven or not. In the six months to June, the group posted a 13% rise in revenues to £117m, compared with the same time last year. Pre-tax profits rose slightly from £33m a year ago to £35m. In the black for sure but a far cry from the stellar growth shareholders are used to. Shares are down 11% at the time of writing, with investors put off in particular by UK revenues trickling up 5% to just over £60m.

With the UK accounting for the lion’s share of profits, it prompts the question – have we hit peak gin?

And while it’s easy to make your assessment by looking round the pubs and supermarkets, I think there are a few other reasons for the group’s slowing growth.

First, it’s not necessarily the UK figures that are the issue here. Investors have got used to huge growth but it would take an incredible optimist to think it would never ease off. What investors have been hoping for is that ventures into international markets will offset a maturing presence and appetite over here.

The tricky part is that the only marketplace with an opportunity set big enough to continue the firm’s strong headline growth figures is the US. And this is where it comes down to taste.

The gin resurgence of recent years is mainly confined to the UK and Spain, Europe at the most. The US prefers darker spirits and it’s just not that easy to replace that red cola can that goes alongside a measure of Jack. It will take much longer to break the incumbent brand loyalties across the pond and investors might just have to get used to it. US sales for the period were 24% higher in constant currencies during the period – that’s a 1% rise on this time last year, so progress is being made, just not enough for some.

Premium also means something different in the US - the likes of Ciroc and Hennessy elevated their standing by positioning themselves as the rapper’s tipple of choice. It will be interesting to see the long-term strategy for Fever-Tree’s branding as it builds on momentum from tie-ups with distributors including Walmart so far this year.

One thing is for sure, the US will be a defining market for the mixer maker as the likes of Purplebricks and ASOS have seen. Earlier this month the hybrid estate agency announced it was pulling out of America as it struggled to replicate its strong performance on this side of the water. And ASOS is still struggling to scale up its distribution centre in Atlanta, running into tech issues and compliance for third-party brands.

However, if Fever-Tree can successfully depose Schweppes and owner Coke in the world’s biggest soft drinks market then the sky is the limit. It might take a bit more tactical nous and a lot more money to make it happen but with the UK seemingly already tapped, this surely has to be the focus now.

More on Fever-Tree

Five year performance

(%)
As at 22 July
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
Fever-Tree - 122.9 134.1 97.7 -34.2

Past performance is not a reliable indicator of future returns

Source: FE, as at 22.7.19, in local currency terms with income reinvested 

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