For a non-alcoholic drinks brand, Fever-Tree has certainly given its investors a few painful hangovers. The maker of posh tonic water enjoyed a fast and frothy decade after its creation in 2004, culminating in a 2014 stock market listing on Aim that saw it valued at £112 million. Fever-Tree later fizzed up to almost £40 a share for a £4.5 billion valuation, overshadowing some of the FTSE 100. Then came several crashes, including lockdown’s closures of the bars and restaurants that stock Fever-Tree’s mixers, when the shares collapsed to 935p.
The stock is now bubbling along at £17.70 and Fever-Tree looks much more palatable.
Its profit margins, though, have been dragged down amid rising inflation, with higher wages for lorry drivers, transatlantic freight charges and US storage costs piling on the pressure. Fever-Tree raised some prices in response — but then the Ukraine war and a jump in commodity prices led the drinks brand to warn on profits last month.
Yet, as Ashton Olds at Berenberg bank put it, Fever-Tree’s problems don’t reflect “a structurally worse business”. Sales momentum, he added, “remains very strong and the stock still offers a long-term opportunity”. Revenues rose by 23 per cent to £311 million last year.
Yes, some squeezed households will swap to a supermarket mixer to save money, but international growth looks strong — Fever-Tree is building a bottling plant in Australia and a canning line in the US — and this year there will be more benefits as bars pack in more punters. It has also got funds to invest, with net cash increasing 16 per cent to £166 million last year.
The management is passionate, too. I first met Fever-Tree’s founders in 2013, when Tim Warrillow and Charles Rolls’s sales stood at just £12 million a year. They were so intent on finding the best, quinine-containing drinks that the pair trekked to the Congo, where their taxi came under attack from militia wielding AK-47s.
Warrillow remains at the helm (with a 5 per cent stake giving him skin in the game, too) and still sounds like he would face down a bullet for his brand.
There is also the possibility that the squeeze on the share price makes it more likely that Fever-Tree could at last whet the appetite of the likes of Diageo or Coca-Cola. Such an approach has been long rumoured; could 2022 be the year? Bolting the premium brand onto an existing distribution network would be an easy win for a global drinks giant. Buy Fever-Tree before they do.
