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Are you back to your old consumer-self? Have you ventured out to make the most of the Eat out to Help Out scheme? Or, are those daily commute savings finding their way into the drinks aisle? One company hoping these answers are all ‘yes’ is premium mixer brand Fever-Tree Drinks (FEVR).
Having successfully ridden the coat-tails of the booming gin market over the past few years and hoovering up demand for a high-end alternative to sickly mixers, Fever-Tree will want to regain as much pre-pandemic momentum as possible.
Are the glory days already over?
Wind back to 2017 and the so-called ‘posh tonics’ producer was on a roll. The rapidly-growing popularity of its premium tonic water saw sales growth of 97% that year and a further 53% in 2018, in the UK alone. However, in 2019, sales suddenly stalled and with mutterings the UK was reaching ‘peak gin’, the fear was that the party was already showing signs of coming to an end. 2020 has brought its own challenges - not least an environment badly suited to socialising over a drink - but there’s a lot more facing Fever-Tree than a virus-induced lockdown.
The consumer slowdown of the past few years, with Brexit uncertainty rife and even last Christmas’s sales failing to pep sales up sufficiently, have certainly led many to speculate that Fever-Tree has lost its fizz.
However, underestimating the firm that took on Coca-Cola brand Schweppes and currently dominates the premium mixer market hasn’t served investors well up to now.
Shares might be someway off their 2018 peak but that just might allow die-hard fans the chance they need to get in as the firm navigates its way out of lockdown and tackles its next big project, the US.
Beyond the virus
The company has sought a foothold across the water for some time now and perhaps the retraction in share price is a reflection of just how difficult a task that is. In general, US consumers prefer darker spirits ill-suited to tonic or soda, and investors are still unsure how Fever-Tree can muscle in on the Jack and Coke crowd.
And while the hurdle of coronavirus has to be the immediate focus for the firm, investors might want to widen the frame and consider whether the once plucky upstart can do it again across the Atlantic. If so, the opportunity set is even bigger.
Fever-Tree’s history shows management doesn’t shy away from a challenge - interim results next week will give an idea of how its consumers around the globe have changed their habits during lockdown. As mentioned, investors will be perhaps most interested in how well the firm’s colas and ginger ales are penetrating the US market.
While numbers this time around won’t reflect a company back to business as usual, any pronounced weakness might sound alarm bells among UK investors. With the end of the furlough scheme coming next month, consumer spending levels could dip - investors will be looking for signs that widening the product range and broadening key markets can ease the pressure on the UK side of the portfolio.
More on Fever-Tree Drinks
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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