Broker tips: Fevertree, Kitwave

Analysts at Berenberg downgraded mixed drinks manufacturer Fevertree from 'buy' to 'hold' on Friday, citing external pressures.

Berenberg stated that since it reinstated coverage on Fevertree last year, it had maintained that the group had "significant global revenue opportunities" and that it was underearning on margin.

While the analysts said their view was "largely unchanged", their confidence in Fevertree's near-term earnings profile had "diminished" due to two factors - increasing challenges in the UK on-trade and a lack of visibility on cost pressures.

The German bank highlighted that the UK on-trade was a core part of the Fevertree story but said it was under "increasing pressure", with energy bills putting significant pressures on operators, reducing discretionary spending weighing on footfall, and the emergence of novel offerings by competitors taking market share.

As far as margin visibility was concerned, Berenberg noted that one of the core attractions of Fevertree was its outsourced business model, which has allowed it to earn "market-leading" returns on capital. However, it also said this limits visibility in a time where "significant volatility" on input costs exists outside of the company's control.

"With these two factors at play, we think that there are limited positive catalysts in the near term," said Berenberg, which also lowered its target price on the stock from 1,100.0p to 1,000.0p.

Analysts at Canaccord Genuity reiterated their 'buy' rating on Kitwave shares on Friday, stating price weakness provided a buying opportunity.

Canaccord Genuity said Kitwave's recent share price fall was "unjustified" in its view, given "significant progress" made since the stock's initial public offering and future growth potential both from organic opportunities and M&A.

"Since IPO in May 2021, it is worth reiterating that KITW has delivered no less than four upgrades, with FY22 adjusted EBITDA forecasts standing 40% ahead of those set at IPO. These upgrades have been delivered through a combination of strong underlying performance and the successful acquisition of MJ Baker, the first since IPO and 11th since 2011," said Canaccord.

The Canadian bank, which stood by its 345.0p target price on the stock, said Kitwave's core end customer base of independent operators were "resilient by nature", as seen during the Covid-19 pandemic, and stated recent concerns about rising energy bills seem to be "overplayed" and should be eased by Downing Street's intervention with support last week.

"We note that KITW has hedged its own energy requirements until 2026. We believe that the warm, dry summer should have been positive for trading, with industry data for August suggesting that convenience stores outperformed supermarkets. It should be remembered that the group's product offering consists of largely low-ticket items and that volumes have historically remained largely consistent during previous economic downturns," said Canaccord.