FeverTree: Long-Term Compounder; Takeover Potential Not Priced In

Initating Coverage (FEVR LN) (Buy): Shares were a favourite among “Quality Growth” investors but have fallen 60% since 2021 to below their COVID trough.

Highlights

• Clear opportunity in the U.S., where sales continue to grow at double-digits.

• Margins collapsed due to jump in glass costs, but should recover from 2024.

• 35.6x P/E on 2024 EPS and 27.0x on 2025; likely 9%+ EPS growth long-term.

• At 1,069p, “standalone” forecasts show a 39% total return (10.0% IRR) by 2027.

• FeverTree is a natural acquisition target, given its size and likely synergies.

Introduction

We initiate a Buy rating on FeverTree Drinks PLC, the U.K. drinks company best known for premium mixers. We believe FeverTree will generate a 10%+ annualized return on a standalone basis, and significantly more in the highly likely scenario of an acquisition offer from a strategic buyer.

FeverTree is a unique asset, having multiplied its revenues by more than 10x since 2014, as well as built a powerful brand and a portfolio of innovative, high-quality products. However, much like for premium spirits companies, FeverTree shares are near their March-2020 pandemic trough, having fallen 60% since the end of 2021:

FeverTree Share Price (Last 5 Years)

Source: Google Finance (21-Jun-24).

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