McMurtry Investment Report & Model Portfolios

Adding Fevertree Drinks PLC , FQVTF- US, to both portfolios

November 20, 2023

I am adding the British company ADR, Fevertree Drinks, to both portfolios in the Consumer Staples sector.

This company was founded in 2004 and is a global producer of all natural tonic water drink mixers without the use of artificial sweeteners. The company has broadened its product mix into ginger beer, ginger ale and lemonade in addition to its tonic and soda water. Fevertree currently operates in 25 countries including the UK, US and Spain. The initial tonic water product was flavoured with quinine, a chemical extracted from the bark of the South American cinchana tree. The tonic water was introduced in India as a pharma aid in the reduction of malaria.

The overall global trend is that spirit consumption is growing faster than either beer or wine consumption. The focus on health and wellness has placed a preference for premium mixers like Fevertree’s, over regular ones. Between 2012-2019, the premium global mixer category has grown globally at almost five times the rate of growth in the total mixer category.

As this company is UK based, the financial reports are not as frequent as is the case in the US. Total sales in fiscal 2024 are expected to rise by 11%. EBITDA saw a decline in fiscal 2023 as a result of much higher glass prices and shipping costs. The company is totally aware of these cost pressures and is currently addressing them appropriately. Lower costs are expected in 2024 with freight costs declining and glass bottle prices easing off. This will greatly help to reduce the pressure on operating margins.

The company has a strong balance sheet with virtually no long term debt.

Personally I use the tonic water as a premium mixer. It can be used either in a liquor based or non liquor based drink. The quality of the tonic water is greatly superior to the other non premium mixers available on the market today.

My recommendation is to purchase a small position initially , about 1-2% of your total equity holdings, until the next financial report is announced over the next few months. This will provide you with an opportunity to closely monitor the improvement in both operating costs and margins.

The current dividend yield is 1.51%.



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