Equities trading - Fever-Tree delivers another upgrade, Wetherspoon beats

There is no stopping the momentum behind the Fevertree brand – yet another upgrade. I’m losing count of how many times management has raised its profit expectations but my estimates this was the sixth upgrade in little over a year – exceptional performance by a brand that has simply got everything right so far. We’re running out of superlatives.

Full year revenue is expected to be around £169 million, reflecting growth of 66% on last year. Performance in the UK in the second half was ‘exceptionally strong’ and it continues to gain market share from competitors like Britvic and Schweppes. UK revenues are set to be double that of last year (+96%).

Fevertree’s upmarket tonics have arrived on the market at the ideal time, coinciding with a resurgent market for gin-based drinks. We note that the ‘gin craze’ has seen the number of UK distilleries more than double in five years. But Fevertree’s push into upmarket soft drinks is not just about tonics – ginger, cola and lemonades – where it can derive significant future earnings.

Continental Europe sales are +42%, while in the US sales are up roughly 39%. The USA is the real prize here and with the establishment of a North American office complete with its own CEO, it appears well placed to win there too. Rest of world sales were also very strong and likely to be +57% on 2016.

All of which means management says full-year results will be ‘comfortably ahead of market expectations’. 

Shares are already up significantly following the appointment of a non-executive director from Unilever, which fuelled takeover talk. FEVR is certainly a takeover play for one of the big FMCG brands but there appears to be plenty of organic growth left in the tank, particularly outside the core UK market. Shares popped more than 6% on the open to trade at 2597p – up nearly 1,500% since its float.

In a note last week Jefferies set a price target on FEVR of 3000p, based on 2500p from tonics plus another 500p from a 20% chance of capitalising on non-tonic mixers. If management does capitalise fully on non-tonics - key for RoW and USA - Jefferies ascribes another 2500p of value per share.

Meanwhile, JD Wetherspoon shares climbed 4% in early trading to 1324p after reporting that it’s on track to beat forecasts after delivering a very healthy 6% rise in like for like sales. In sparkling form as ever, boss Tim Martin used the trading update to berate various institutions for talking down the UK economy post-Brexit and specifically weighed into suggests that food prices will rise after Brexit.

Martin did also flag some downside risks – notably ‘significant costs’ that he expects to encounter in the second half. Higher labour costs, business rates and the sugar tax are among the risks. There is also some doubts about whether Wetherspoon will be able to capitalise fully on the World Cup in the summer, with Martin noting there is ‘some uncertainty as to the effects on our business’. The pub chain usually keeps TV football off its premises and in 2014 reported weaker sales over the course of the tournament.

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