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At first glance, the January 25 end-of-year update from premium mixers brand Fever-Tree Drinks looked encouraging, with revenue up 6 per cent last year to £364mn. This was driven by a strong performance in the US, where sales increased by more than a fifth to become the company’s biggest market.
However, overall revenue growth was below expectations and an adjusted cash profit figure of £30mn was at the bottom of its guided range.
Still, an upbeat statement on the company’s outlook helped to push its shares up by 6 per cent as it estimated sales growth of 8 per cent for 2024 and a huge improvement in margins that “will drive a doubling” of said cash profit, according to chief executive Tim Warrillow.
His confidence is based on expectations that overheads will be much lower. New glass contracts fully hedge energy prices and transatlantic freight rates are expected to fall. Fever-Tree is also confident of its ability to keep raising prices.
Fever-Tree’s market capitalisation of £1.24bn is 72 per cent below its 2018 peak when shares changed for more than 70-times forecast earnings. Sales over the past five years have continued to grow but the consensus earnings per share forecast of 14p for 2023 is around a quarter of that generated in 2018.
Chair Domenic De Lorenzo looks convinced, though — he has just spent over £438,000 on shares. Fever-Tree still has plenty of fans among fund managers, too, and a valuation of 29-times broker Liberum’s forecast earnings of 37p for 2024 is well below its five-year average of 43-times. Yet given its recent track record, it still looks pretty punchy.
Family trust sees glass half Fuller
Like its hospitality peers in a sector grappling with a cost base that has risen significantly compared with pre-pandemic times, pub operator Fuller, Smith & Turner isn’t overjoyed to be facing a 9.8 per cent increase in the national living wage and a surge in business rates this April.
Chief executive Simon Emeny noted the incoming costs headache in a recent trading update, but also flagged “a number of high-profile, trade-enhancing investment schemes in our existing estate” as a driver of future growth. Investors will be hoping a focus on existing sites rather than expansion is the right strategy.
The company’s like-for-like sales rose 11.5 per cent for the 42 weeks to 20 January against the previous year, helped by a “particularly strong” festive period. Sales were up 21.6 per cent in the five-week period over Christmas and New Year, although numbers were helped by soft comparatives due to train strikes.
Fuller’s update came the day after its competitor JD Wetherspoon revealed its own festive trading numbers and confirmed it had outperformed the market for the 16th month in a row in December.
Its chair Tim Martin complained again about the “price disparity” between pubs and supermarkets, driven by what he sees as unjust tax discrepancies on VAT and business rates which benefit the grocers. The disparity will be worsened by a labour cost surge, he argued.
Concerns over rising costs for pubs didn’t stop a family trust, of which Fuller’s non-executive director Sir James Fuller’s children are beneficiaries, buying £500,000-worth of FST shares on 18 January.
Fuller’s shares aren’t at the cheaper end of the pub spectrum. They trade hands at 24-times forward consensus earnings, a premium to peers such as Young & Co’s Brewery on 16 times and Wetherspoon on 18 times. On an enterprise value-to-Ebitda basis, Fuller’s valuation is also relatively pricey at nine times.
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