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Fevertree Investors Nursing a Hangover

The Week: Morningstar columnist Rodney Hobson looks at Fevertree, an approach for Cobham and ITV's Love Island

Rodney Hobson 26 July, 2019 | 9:54AM

Fevertree drinks

A reminder of the dangers of jumping on bandwagons just before the wheels drop off - or clinging to them for too long – came from mixer drinks maker Fevertree (FEVR), whose shares slumped nearly 10% after its interim results were announced.

There wasn’t actually much wrong with the figures themselves. Revenue rose 13% and earnings per share by 7% to 26.3p in the six months to 30 June as Fevertree built on its growing reputation as the fizzy drinks supplier of the moment – at least until some other fad comes along. The interim dividend shoots up 23% to 5.20p. Assuming a similar rise in the final, the total payout will be covered by earnings several times over.

Fevertree reported continued growth across all its four regions, including “very encouraging momentum” in the US, potentially the biggest market. Growth has accelerated in Australia and Canada.

Chief executive Tim Warrilow points to a general move away from beer and wine and into mixed drinks. The outcome for the full year will, he says, be in line with expectations.

So why the long faces over long drinks?

Fevertree shares shot up from 166p when they were listed in November 2014 to a peak of £38.96 in just under four years. The company has done well, but surely not well enough to justify multiplying the initial share price 23 times. At just over £20 after the figures, they had shed nearly half that unrealistic price tag.

Assuming the final dividend rises in line with the interim, the prospective yield is still less than 1%. Shareholders have to hope that the sales bubble doesn’t burst. Despite a subsequent partial recovery, I think the shares will fall back further before they eventually bottom out.

Not So Harsh

Defence and aerospace company Cobham (COB) produces products to help people stay alive in harsh environments, on earth and in space, but its shares have suffered in a harsh environment for the past two-and-a-half years.

Now there is a takeover offer from private equity investor Advent International at 165p a share, a level not seen since January 2017.  The shares promptly shot up 35% to match the bid price.

Shareholders could joyfully take the 165.5p that the shares currently trade at by selling in the market. It would not be wrong to do so but the odds favour hanging on for now. Some investors are clearly hoping that a higher bid will emerge while the downside is strictly limited, as this deal will surely go through if nothing better turns up.

In the absence of a better offer, shareholders should follow the directors’ advice and vote for the scheme of arrangement that will see the deal go through.

Love It and Leave It

On Love Island, some contestants seem to know only two words – one is "like" and the other isn’t printable – but that doesn’t stop people watching and advertisers advertising. The programme has brought a boost for advertising revenue at ITV (ITV) but the simple fact is that the total over the past six months is down again, this time by 5% as competitors such as Netflix and Sky keep up the competitive pressure.

ITV shares slid from 280p four years ago to the point where they looked like crashing below 100p. A recent pick-up has taken them to 115p. I don’t like it. Investors who cling on may find themselves using the other word from Love Island before long.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Cobham PLC158.50 GBX0.25
Fevertree Drinks PLC2,206.00 GBX2.27
ITV PLC144.09 GBX2.15

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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