Crunch Time at Fevertree as Estimates Cut, Short Bets Rise
(Bloomberg) -- With price targets falling and short interest rising, Tuesday’s first-half results will be a litmus test for former market darling Fevertree Drinks Plc.
The premium tonic maker is likely to report a sharp slowdown in the exponential sales growth of recent years as it starts to reach what Jefferies has called “gin fatigue” in its home market of the U.K.
Shore Capital’s estimate of a 14% revenue gain in the first six months of 2019 compares with a 40% increase last year. While the first half of 2018 benefited from good weather, a royal wedding and the soccer World Cup, this year has been affected by cool, wet conditions that contributed to last week’s profit warning from Irn-Bru maker AG Barr Plc.
“We see the slowdown as a reflection of distribution maturing and weather or other one-offs, rather than it being an outcome of increased competition,” Shore Capital analyst Alex Smith wrote in a July 11 report, maintaining a buy on Fevertree.
Like sales growth, Fevertree’s share price is tailing off. After climbing more than 12-fold in the three years through 2017, the stock has fallen about 42% from its 2018 peak, although an advance of about 5% on Monday helped pare some of those losses. Short interest has risen to 1.9% of shares outstanding as of July 19, a multi-year high, according to data compiled by IHS Markit Ltd.
Analysts at RBC Capital Markets and Morgan Stanley have decreased their price targets on the stock to factor in lower U.K. sales growth estimates for the quarter. Jefferies, which also cut its target recently, noted signs two months ago that a proliferation of more exotic gin flavors may be a sign of “peak gin.”
Others are more optimistic. Deutsche Bank’s Constantin Hesse upgraded the stock to buy last week and is “reasonably confident” that the results should reassure investors. He sees net organic revenue rising 16% to 121.4 million pounds ($152.2 million) for the six months ended June 30.
And after its decline over the past year, Fevertree stock is near the cheapest it’s been since 2015, trading at about 36 times analysts’ forecast profit for the next 12 months.
(Updates to include Monday’s share move in fifth paragraph.)
--With assistance from Phil Serafino.
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