Fever-Tree full year profits set to fizz higher

Fever-Tree is set to post an increase in annual profits next week after the mixer maker benefited from last summer’s heatwave and bumper Christmas trading.

City analysts forecast the company will report a 32% increase in earnings to £77.5 million for 2018, ahead of expectations.

Sales are also set to jump 39% to £236 million following what Fever Tree has previously described as an “outstanding” summer and strong Christmas.

In the UK, its fastest growing market, sales were up 52% last year and the US saw 21% growth.

However, both profit and sales growth are set to have slowed markedly from 2017, when they jumped by over 60% and Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, sounded a note of caution.

“Among the good news, there are a couple of things to look out for.

“We think operating margins will be under pressure, as the UK sugar tax will have impacted profitability in the second half of the year. At the same time, increased investment in the USA is probably diluting margins too.”

Fever-Tree, which specialises in selling mixers such as ginger beer and Sicilian lemonade, is hoping to replicate the group’s UK success in the US.

Ms Lund-Yates said: “The international business needs to pick up the slack as the UK sales growth slows. We think the US is an exciting prospect with lots of potential, but with gin proving a slow burner across the pond, Fevertree might struggle to replicate their sparkle in future.”

Broker Jefferies expects Fever-Tree’s phenomenal growth rates seen in the UK to normalise over the coming years.

It has also calculated that a 5% deceleration in the UK requires 20% acceleration in the US to maintain group growth.

Last year, Fever-Tree inked a distribution agreement with Southern Glazer’s Wine & Spirits (SGWS), North America’s largest distributor of wines and spirits.

Jefferies believes that this could be a “game changer” for the company.

Edward Mundy, analyst at the broker, said: “The US is the largest opportunity for Fever-Tree over the med-term given strong premiumisation trends in US spirits.

“The SGWS agreement is a game-changer and provides distribution strength that is the envy of other consumer packaged goods challengers launching new products.”

However, he cautioned that US acceleration will take time to materialise.