Fevertree Drinks (FEVR:AIM) 745p

Gain to date: 6.6%

We urged investors to take a taste of Fevertree Drinks (FEVR:AIM) at 698.5p on 19 December 2024, making the premium mixer drinks firm one of our key 2025 stock selections on the basis the shares were cheap and that negative sentiment towards the stock and the underlying profitability of the business had both troughed. Shares also highlighted that the brand has a significant amount of white space to grow into.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

On 30 January, the shares fizzed higher after Fevertree announced a transformational strategic partnership with beer maker Molson Coors (TAP:NYSE) that represents a big endorsement of the brand Fevertree has built up across the Atlantic.

The partnership, which has seen Molson Coors buy an 8.5% stake in the business for £71 million, will drive the next stage of Fevertree’s growth in the US and improve the tonic water-to-ginger ale seller’s earnings quality and cash generation; Fevertree has begun to returning said £71 million to shareholders via a buyback programme. Molson Coors will take over Fevertree’s US operations, while Fevertree will receive a share of the profits of the US operations as a royalty, which should materially improve over time.

WHAT SHOULD INVESTORS DO NOW?

Keep buying shares in the Madagascan cola-to-mojito mixer seller, which bubbled up to £8 on the exciting news before settling back to 745p. That leaves our ‘buy’ call 6.6% in the money, but the potential is huge and we are thirsty for more upside.

The terms of the Molson Coors tie-up reduces demands on Fevertree’s capital and should power its growth in the US thanks to the beer maker’s heavyweight distribution and marketing capabilities.

Berenberg estimates that 140p per share in cash has been ‘released from working capital due to the Molson Coors partnership given the onshoring of production and the reduced inventory requirements of the US business’.

Panmure Liberum observes that the Molson Coors stake ‘provides a long-term backer and a potential eventual acquirer of the group’. 

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