Fevertree (LON: FEVR) shares: Should you buy despite muted guidance?  

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Fevertree (LON: FEVR) shares: Should you buy despite muted guidance?  

 Fevertree (LON: FEVR) shares: Should you buy despite muted guidance?  
Image source: Shutterstock.com

Highlights

  • Fevertree Drinks Plc’s shares were down by around 9% despite excellent top-line performance.
  • The London-based company reported solid business performance driven by growth in both off-trade and on-trade channels.
  • The rising inflation across different markets could lead to cost headwinds for the company in 2022.

FTSE AIM-listed premium tonic water maker Fevertree Drinks Plc (LON: FEVR) shares slumped around 9 per cent despite announcing an excellent top-line performance in its business update for the year ended 31 December 2021.

Full-year trading update

The London-based company, ahead of its preliminary results on 16 March 2022, reported solid business performance driven by growth in both off-trade and on-trade channels. Overall, the total revenue was up by 23% to £311.1 million (FY20 revenue: £252.1 million). The off-trade channels like retail stores and supermarkets continued to grow and supported the business, while on-trade channels like sales through restaurants and pubs picked up in the second half of 2021 following the ease of restrictions.

The company reported growth across its different regions of operations. The UK market (revenue up by 15% at £118.3 million) reported robust business growth, ahead of the company’s expectations mainly due to brand recognition and high demand from on-trade channels in the second half of 2021. The company’s sales were gradually returning to pre-pandemic levels before the rise of Omicron variant cases in November 2021, which impacted the complete recovery.

The US market sales were up by 33% at £77.9 million, mainly due to brand name and new products launches. The growing household trend of making long mixed drinks at home, which picked up during the pandemic period, has contributed to the company’s growth.

Europe and the Rest of the world (ROW) reported 35% and 6% revenue growth, respectively, compared to FY2020.

Guidance for 2022

The momentum buildup in key markets is expected to continue in 2022. As per the company, the revenue for FY2022 could be in the range of £355 million to £365 million, which is a rise of 17%, but lower sales growth compared to the 23% growth reported in 2021.

In addition, the rising inflation across different markets could lead to cost headwinds for the company in 2022. It might result in flat margins and an EBITDA range of £69 million to £72 million.

Is it a good time to invest?

After reporting muted outlook for the new financial year, the company’s stock saw a sell-off, taking it to near its 52-week low of GBX 2,039.

Overall, the company is confident to deliver business growth in FY22. The company has created a well-recognised brand name in the premium drinking segment, which is likely to help the company’s revenue and profitability. Also, the regular launch of new products to increase the market share will be beneficial in the long term.

Stock performance

 Fevertree Drinks stock performance

(Image Source: Refinitiv)

Fevertree Drinks Plc’s last close was at GBX 2,159, with a market cap of 2,516 million as of 27 January 2022.

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