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Home / Blog / blog / Fevertree: Flat or fizzing for drinks brands? || 24-4-20

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Fevertree: Flat or fizzing for drinks brands? || 24-4-20

Premium mixer firm Fevertree’s shares jumped 13 per cent this week as it revealed that lockdown drinking has been just the tonic for its sales.

The group revealed that the in-store arm of its business remained ‘robust’ despite the decline in bar and restaurant sales, which makes up about 45 per cent of its business.

Fevertree also announced it will still pay a full-year dividend of 9.88p a share and, in its latest trading update, said it is ‘financially strong’ enough to cope with the current crisis.

Fevertree’s revenue rose by ten per cent in the year to the end of December 2019, although its profits dropped four per cent as margins became tighter.

So, with share prices now standing at 1, 562.48p at the time of writing, is Fevertree regaining its fizz or will it look flat as the pandemic drags on?

Fevertree appears to be have a healthy balance sheet, with a year-end cash position of £128.3 million, up 53.5 per cent from the year before.

Chief Executive Tim Warrilow said: “While we will not be unaffected by the current situation, especially in the On-Trade, Fever-Tree is well positioned to manage our way through this situation.”

Some have pointed out though, that the premium mixer brand’s share price is still down considerably from this time last year when it stood around the 3,000p mark. Russ Mould from AJ Bell said: “’Post its 2014 stock market debut it bubbled up rapidly, becoming a market darling through a string of earnings upgrades as it gained traction in the UK market. But by early 2020 the shares had more than halved from a valuation in late 2018.”

He did highlight the company’s strong financial position however, which others have reiterated pointing out that its long-term borrowings are zero. The drinks manufacturer is also starting to gain a foothold in overseas markets such as the US, Canada and Australia which could leave it well-poised for further growth when the current pandemic ends.

Alcoholic drinks manufacturer, Diageo, has also been hit by the current crisis with its share price falling 1.6 per cent as its target price was slashed by analysts at RBC.

RBS downgraded Diageo to ‘sector perform’ and cut its target price to 2,400p from 3,000p, saying that it no longer expects it to grow margins faster than other consumer staples firms.

Shares in Diageo, which manufactures big name alcoholic brands including Johnnie Walker, Gordons and Guinness, now stand at 2,662.00p at the time of writing.

Obviously, the firm has taken a big hit through bar and restaurant closures, as well as a drop in airport sales which make up a large part of its revenue, but is it all doom and gloom for Diageo?

Many think that the group is well-positioned to bounce back – while its share price is down over the past six months, it is up 40 per cent over the last five years. The diversity and long-term popularity of its brands should provide some resilience and with a current price-to earnings-ratio of 20, could this be a good entry point for investors who are prepared to wait out the storm?

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance.

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