Berenberg lowers target price on Fevertree, stays at 'buy'

Berenberg, which reiterated its 'buy' rating on the stock, said Fevertree's trading update on 19 May was "positive", with momentum yet to abate despite the softening consumer backdrop.

The German bank noted that on-trade activity continued to improve, cost inflation appeared in line with expectations so far, and added that it was yet to see any deterioration in demand.

"While the summer and December holiday periods are the most important trading windows for Fevertree, it has started FY22 well. On-trade activity has continued to improve, and CGA data shows that spirits are materially outperforming beer and wine," said the analysts.

Berenberg stated that while it acknowledged risks relating to softening demand, it also thinks that Fevertree looks "increasingly attractive" in the context of its material de-rating versus peers, initiatives to improve margins, and its exposure to structural growth trends.

"Commodity costs have not materially changed since Fevertree issued its revised guidance on 16 March. We think that margin expectations have been rebased to a level that reflects the current cost environment, while other companies with more exhaustive hedging policies will experience a gradual realisation of higher costs," said Berenberg.

"We thus think there is less risk of a continued downgrade cycle versus peers, which is important in the context of Fevertree's material de-rating. We think these dynamics make Fevertree increasingly attractive versus peers, and with our views on the long-term revenue and margin potential unchanged, we reiterate our 'buy' rating."

Reporting by Iain Gilbert at Sharecast.com