ShareProphets

A Broker presents the full bear case for Fevertree

By Tom Winnifrith | Friday 24 November 2017


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


This is interesting. Are the glory days of Fevertree (FEVR) behind it? Is it time to call the top? This is the bear case as presented by a leading broker today. It is an interesting read...

Now this is an interesting one as it has of course been everyone’s darling stock because everyone loves Fever Tree tonic – but do they love Fever Tree tonic or do they just hate Schweppes ? And just as in Gin we just had Gordons and now we have so many Gins there is one for each day of the year , could the same happen with tonic ?

Actually it is already happening with Tonic – we have Franklin &Sons already starting to become the “tonic to drink”'And I am told that in Australia they have numerous Tonic companies popping up

I mean let’s look at some basics first – the stock has performed exceptionally

The Price to Book value is 21 times and the forward  PE is 50x And revenue is growing rapidly but it was still only just over £100 million last year – does that give you a £2.2 billion market cap ?

Now I find this interesting –on the 7th Nov they gave a trading update and said “the Board anticipates that the results for the full year ending 31 December 2017 will be materially ahead of current market expectations.”…………….but look what happened 

After going up on apparent very good news – it came straight back down again …………so does the market see something ?

You see I can see what is worrying – we love our fever tree tonic as its trendy and different  and so have we been sucked into buying the shares ? And it Is the drinkers who own the shares with very few institutions – just 3 , which are Old Mutual , Standard Life and JP Morgan with about 20%

What if it is just a fad and also just a UK fad -the UK does account for nearly half of sales. I actually think they can make progress but I also know it’s a very very tough world with major companies to compete against and also own label and that is before we see other boutique competitors as we do in the Gin market itself – will their Ginger beer and Cola work ………No it’s all about the tonic

It’s not like Red Bull – that was a completely new drink – this is just another brand for an old favourite

And look Hotel Chocolat is another interesting similar sort of brand but they have a market cap of only £400 million and yet they have a very similar turnover of just over £100 million but don’t have a margin anywhere near as good – but that also brings to question how long Fever Tree can keep their margin so high in a very competitive market place ?


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