#FEVR Fever-Tree - is this a GLOBAL consumer blue-chip in the making?
High quality, founder-led growth company facing temporary challenges that mask the important progress being made overseas and in new products
We are very excited about the long term prospects for #FEVR Fever-Tree - 1250p
We first posted about Fever-Tree at 900p on 15 July 2022. The archive of prior blog posts is available to paid subscribers ($45 per annum, $5 per month).
The latest results show lots of evidence that the company's efforts to grow both product range and geography are succeeding.
On bid-interest from drinks majors, co-Founder Tim Warrillow states in podcast (link in appendix) - “There has certainly been some interest over time but we are still just getting started. The opportunity that is unfolding ahead of us in this category is as exciting now as it has always been”.
There has been sharp margin compression due to cost inflation of ingredients, shipping and - especially - glass (c80% of Fever-Tree’s product is presented in glass)
Of course there are different views on the outlook for future energy inflation. But the thing that has been disruptive for the company is the very immediate and stark repricing of energy and related input costs (especially glass) in 2022, with glass in particular spilling over into 2023. Even if we face a decade ahead of rising energy prices, the pace of the re-pricing is unlikely to be as rapid as that experienced in 2022.
Fever-Tree has a premium branded product and clear pricing power. Gradual energy-related cost inflation should be adequately managed with gradual increases in pricing and improvements in efficiency. But in order to avoid a really shocking one-off price rise, management have not wanted to pass on the full extent of the latest cost increases immediately. They have also been dealing with this inflation simultaneous to the early stages of key overseas expansion, which is itself also a margin-dilutive transition process until critical local scale is reached, allowing local production.
So the thesis is quite simple - the company should have already been rewarded in valuation for the proof points on geographical and product line expansion. But due to temporary margin compression, the market is offering you the chance to invest at a valuation that doesn't reflect this progress.
Fever-Tree is likely a GLOBAL premium consumer blue-chip in the making, being offered at the valuation of a niche UK focused company - the company that it used to be, not the company of today, and certainly not the company we think it can be tomorrow. We think this could be a multi-decade high quality compounder, hiding in plain sight.
RISKS - Short term risks include a weakening macro consumer demand backdrop, and longer term risks include a re-acceleration of sharp energy price increases. Further clarification desired on 2022 US constant currency growth excluding acquisition benefits.