JPMorgan downgrades Fevertree after 'significant' outperformance

JPMorgan Cazenove downgraded its rating on shares of posh tonics maker Fevertree to ‘underweight’ from ‘neutral’ on Thursday following "significant" outperformance year to date.

JPM noted the shares have risen 13% YTD and are up more than 150% from mid-March lows, versus the sector down 17% YTD. It said the stock is now back at 18-month valuation highs despite lingering Covid-19 pressures to the top-line and margins.

"With little incremental from the H1 2020 pre-close trading update (reaction), risks still look prevalent to more profitable on-trade demand from Covid-19 (circa 45% of sales), including re-closures in parts of the US," it said.

JPM said the current valuation skews the risk/reward to the downside as it appears to price in a seamless recovery in FY21, including continued share/distribution gains in the US and Europe over the mid term, despite existing signs of UK share losses.

The bank lifted its price target on the stock to 1,900p from 1,260p, reflecting a 70% 2021 price-to-earnings premium to the sector.

At 0935 BST, the shares were down 4% at 2,261p.