Source: Fevertree Ltd

Fevertree's Market Value Even More Exotic Than Its Fizzy Tonics

Updated on
  • First-half sales rise 77% and full-year seen beating estimates
  • Shares rise as much as 22.4 percent to record in London

Fevertree Drinks Plc’s winning formula goes like this: 40 workers, a dozen soft-drink flavors in small bottles and a market value reminiscent of the bygone dot-com boom.

Investors can’t get enough of it, and the stock shot up as much as 24 percent after the seller of high-end tonic water made from Congolese quinine reported earnings that beat analyst estimates and said full-year results will be “materially” ahead of expectations. The shares have soared 87 percent this year, making Fevertree one of the half-dozen best performers among the 100 largest stocks on the FTSE AIM 100 Index.

The stock has more than quintupled in the past two years as the company’s tonic waters have gained market share from larger rival Schweppes. With exotic ingredients that also include ginger from Ivory Coast and India, its mixers are increasingly promoted by bartenders who blend them with artisanal gin and other spirits.

The London-based company had “another blockbuster period,” wrote Nicola Mallard, an analyst at Investec. The company announced first-half adjusted earnings of 25.2 million pounds ($32.8 million) as sales gained 77 percent.

Fevertree has been mentioned by Shore Capital analyst Phil Carroll as a potential takeover target for distillers such as Pernod Ricard SA and Bacardi Ltd. The shares rose to a record 2,156 pence in London, posting the steepest intraday gain since Fevertree’s initial public offering in 2014 and giving it a market capitalization of 2.4 billion pounds ($3.1 billion).

The drinks maker, which started selling its Indian tonic water in the U.K. in early 2005, has expanded distribution of its smaller-can format to drive incremental growth at retail outlets. It is also introducing new flavors such as Madagascan cola to mix with dark spirits including rum and has agreed to sell its products across the Virgin Atlantic fleet starting this month.

Fevertree says production is largely outsourced, leaving its handful of employees to focus on marketing and other functions. It’s a similar business model to the one employed by Casamigos, the tequila brand that the actor George Clooney and business partners recently sold to Diageo Plc for as much as $1 billion. For the tonic water maker, it produced an operating margin of 33.6 percent in 2016.

(Updates with share price in third paragraph.)
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