Weekly Round Up: Fevertree

Weekly Round Ups are posted on my Patreon and contain analyses of news, corporate results and wider economics that affect my portfolio holdings and similar quality businesses.

The below is an excerpt from the Weekly Round Up posted on 18th September 2021.


FeverTree also published interim results for the half year 2021 during the week. The business is another firm favourite of mine, with presence in both the Personal and Family Portfolio. FeverTree has essentially created a new category of drinks in premium mixers, which is underpinned by the global shift to drink more premium spirits and less beer and wine. The graph below from Fevertree’s half year presentation adeptly displays how this multi year trend is playing out. Premium price tiers in alcoholic spirits have increased from 30% to 40% over the last 5 years, resulting in a CAGR for the super premium category of 10.8%. As Fevertree do well to point out, what is the point of mixing a £100 bottle of gin or tequila with a god awful mixer?

For the first half of the year, Fevertree grew revenues by 36% to £142m, driven primarily by explosive growth in Europe (102%) and RoW (73%) (Rest of World markets) alongside good performance in the US (32%) and resilient performance in the UK (4%). However, the market continues to focus on the short term such as the slip in gross margins, which fell again from 47% to 45% as increased logistics costs took their toll. On the topic of logistics costs, Fevertree noted that transatlantic shipping costs were rising and impacting margins. I don’t expect this to be a long term headwind given Fevertree’s intentions to bottle and fulfil orders in the US market in the coming years.

Despite the strong revenue growth, the market has remained somewhat pessimistic on FeverTree, for reasons such as the rich valuation (50x 2022 earnings) and the slipping gross margins mentioned above. However, I believe the market is massively underestimating the opportunities ahead of the company. For starters, let’s take a look at the Nielsen retail channel data Fevertree have kindly provided in their recent presentation. Below you can see the mixer category split for each of Fevertree’s main markets. Mainstream mixers house brands such as Schweppes and supermarket own brand drinks. The premium category houses mixers such as Fevertree, Fentimans, Double Dutch and Qmixers in the US.

As you can see, the Fevertree effect has turned UK spirits drinkers into a different breed to those in international markets, where the premium category results in less than 20% market share — in the US, Fevertree’s most important market over the next decade, premium mixers only represent 10% of the total spend. Given that North American consumers are highly brand conscious and are currently drinking more premium spirits than ever, I see this as an opportunity ripe for Fevertree to exploit.

Earlier this year, I wrote an article on Fevertree for the website, which looked at Fevertree’s performance in the US online retail channel versus its closest peer QMixers at popular retailers Kroger, Walmart and Target. Coincidentally, Fevertree have published retail channel data in their half year update to display the performance of their brand versus competition, across the Kroger retail estate. Results below look impressive and show that Fevertree is not only outperforming Schweppes, the biggest mixer brand, but also the US’s own premium brand QMixers.

I have included a link here to the most recent investor presentation, which showcases some of the fantastic promotional activity Fevertree are undertaking to partner their tonics with key spirits brands in local markets. With an expanding market, leading brand and great marketing, I think Fevertree is very well placed to continue creating value for investors.

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