According to the Financial Times, J.P. Morgan Cazenove has sung the praises of insurgent British tonic water brand Fever-Tree, starting coverage of it and awarding it an “outperform” rating.
Founded in 2004 by current boss Tim Warrillow and Charles Rolls, a former managing director of Plymouth Gin, Fever-Tree has ridden Britain’s gin craze perfectly. It is now sold in 45% of pubs and bars and 39% of shops.
The company has swept aside long standing brands such as Scweppes to be the market leader and reported an 11% rise in revenues to £117m in the first half of this year compared with the same period in 2018. However, saving a Hogarthian mania, Fever-Tree appears to have reached a saturation point in the market its previous rate of sales growth is set to fizzle out somewhat.
Nonetheless JP Morgan described the brand as “a unique pure-play on global premium spirits demand, generating high margins and free cash flow from its outsourced business model.” Adding that “the fundamental drivers of the premium ginger and tonic mixers category are strong, especially in Europe ex-UK and the US.”
It predicted that Fever-Tree will deliver a 12.5% annual earnings-per-share growth in the medium term. Although they recognised a valuation of 34.5 times 2020 earnings was “not cheap”, with the likelihood of an upcoming merger or acquisition being high, the broker seems to think it is a worthwhile investment opportunity.