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Fevertree breaks morning slump to test all-time highs

What a difference a few hours makes; the tonic maker was down in the doldrums this morning but it’s recovered strongly
Fevertree tonic water
Shares rallied from £13.58 in the morning to hit £15.39 later on in the afternoon

Fevertree Drinks PLC (LON:FEVR) rallied strongly this afternoon as it bounced back from this morning’s slump, during which it shed more than 7% of its value.

After hitting a low of £13.58 not long after this morning’s opening bell, the share price recovered and added almost £2 to get back to near all-time highs.

Shares have since fallen back slightly, but they’re still more than 3% up for the day at £15.05 to cap a remarkable turnaround.

Rumour has it that a couple of big sell orders, combined with some profit-taking, might have caused the short-lived panic.

The results

The actual figures were fairly well-flagged, with the London-based firm generating revenues of £102.2mln, a year-on-year increase of 73%.

Adjusted underlying earnings (EBITDA) were modestly ahead of market expectations at £35.8mln (2015: £11.6mln), with diluted earnings per share of 23.7p (2015: 11.48p).

Sales in the UK – Fevertree’s largest market – rose 118% in 2016 compared to the previous year, while there was also growth, albeit less exceptional, in Europe (up 24% constant currency), USA (up 36% cc) and the rest of the world (up 88%).

“2016 has been another exceptional year of growth for Fever-Tree, with strong results achieved across all regions, channels and flavours, emphasising the global appeal of the Fever-Tree brand,” said chief executive Tim Warrillow.

“As the pioneer and market leader of the premium mixer category, in both market share and reputation, our quality, award winning range of products continues to help drive the momentum towards premiumisation and simple long drink mixability that is transforming both the spirits and mixer categories worldwide.”

Warrlliow also announced that co-founder Charles Roll is moving from executive deputy chairman to non-executive deputy chairman once the AGM comes round in May.

The (temporary) slump

The numbers and last year’s growth kind of took a back seat though.

Given that Fevertree’s valuation has a lot of future growth priced in, the outlook needs to be for accelerated growth, or at least maintaining current levels.

That the start to 2017 has been “encouraging” with the group “well positioned to deliver further growth” didn’t seem to cut the mustard with investors in early deals who have been accustomed to seemingly never-ending upgrades.

That, combined with a bit of profit-taking no doubt, saw shares drop 7% to £13.60 shortly after the bell.

Brokers bullish all along

Even with the share price taking a hit in early deals, Shore Capital’s Phil Carroll stuck with his 'buy' rating.

“In terms of the outlook management point to an encouraging start to the year which may be a slight disappointment to some investors but given the sheer momentum in the fourth quarter, we see it more as management’s normal relatively prudent approach to managing expectations,” said Carroll.

“Looking ahead, 2017 is going to be another challenge as a result of the high base from 2016.

“However, we still believe Fever-Tree is capable of delivering further upgrades as we progress through the year given its excellent brand and product proposition and a lack of effective competition.

“We highlight that distribution wins can be lumpy and therefore, have an impact on the timing of potential for upgrades. Should there be a ‘weaker’ period of growth that disappoints the market, we would see this as an opportunity to acquire the stock,” Carroll added.

--Updates for broker comments and share price--

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