(Reuters) A carbonated drinks manufacturer is always in bubble territory.
But after a 1,450% share price rise since a late-2014 market debut, arguably none is looking as frothy as upmarket tonic-water-maker Fevertree.
Its shares have started to deflate, but only against a backdrop of general angst over asset valuations, with global equities and bonds at or close to record peaks and cryptocurrency Bitcoin up almost 20-fold this year alone.
A move by Schweppes to compete in the premium drinks segment is behind some of the recent weakness, but fund managers do not expect this to have any sizeable impact on Fevertree’s growth.
Nor do they see any let-up in what has become the Fevertree standard – beating analysts’ earnings forecasts.
Richard Watts, who runs the £3.2bn Old Mutual UK Mid Cap Fund and is the biggest institutional shareholder of Fevertree, topped up his holdings in the company in the last few weeks.
“We think there are significant amounts of upside left in the shares,” he said.
He said Fevertree’s sales momentum is exceptionally strong.
Britain is Fevertree’s largest market. RBC Capital Markets put its contribution to the company’s organic revenue growth at more than 50% since 2015, accelerating to more than 60% since the second half of 2016.
The performance, helped by a boom in craft gin sales, shows no sign of abating. UK sales increased more than 100% in the first half of 2017 – and against a robust prior year level.
Watts said the international business is growing at a very healthy rate, too.
Fevertree is beefing up its overseas presence. It recently opened a US office and appointed a CEO for its business there.
The brand name Fever-Tree is the colloquial name for the cinchona tree, the bark of which is used to make the anti-malarial compound quinine – a key ingredient in tonic water.
Even after such a stellar run, Fevertree gets consistent forecast upgrades from analysts that cover the stock.
Fevertree’s most recent trading update predicted 2017 results materially ahead of market expectations, prompting house broker Investec to lift its revenue forecast by 6%.
Investec started 2016 and 2017 with earnings per share (EPS) forecasts about 70% below what they ultimately became, assuming no further changes for the 2017 estimate.
Fevertree is listed on the FTSE AIM index the London Stock Exchange's market for growing companies, which has less stringent regulations than the main market.
“This company (Fevertree) is growing quickly and there’s always uncertainty when that happens – and things can go wrong. I think it’s right for the analysts to be prudent in their forecasts,” said Aberdeen Standard Investments’ Harry Nimmo.
“But I don’t think it needs much stretch of the imagination to predict that the forecasts should be beaten,” he said.
Fevertree is held across a wide range of funds at Aberdeen Standard Investments, where Nimmo is head of smaller companies. With a market capitalisation of £2.3bn, Fevertree is hardly a small company any more, said Nimmo.
However, Coca-Cola’s relaunch of Schweppes in the UK has been a cause for concern among Fevertree investors, particularly given it comprises premium mixer range, Schweppes 1783, with a big marketing spend behind it.
Fevertree’s shares have fallen about 7% since early October, when the announcement was made.