Jefferies, Deutsche Bank downgrade Fever-Tree

Tonic maker Fever-Tree was downgraded by both Jefferies and Deutsche Bank on Monday following a profit warning last week.

"With near term cost pressures hitting the shares hard, key questions from here are (1) to what extent margins can recover and (2) the medium-term outlook for the core UK market, given headwinds from gin category moderation and risk of consumer downtrading," Jefferies said.

"With low visibility on both factors, we downgrade to hold." The bank, which previously had Fever-Tree at ‘buy’, slashed its price target to 900p from 3,100p.

Jefferies also cut its 2022 EBITDA forecast from £65m to £38.5m to reflect additional headwinds from logistics and inflationary pressures. This compares to the company’s updated guidance range of £37.5m to £45m.

"Our organic growth assumptions in our divisions for F22 moderated to reflect weaker performance in the UK, ongoing uncertainty and risk of continued disruption in the US on supply chain albeit offset by stronger performance in Europe.

"Overall, we model group sales of £350m versus guidance range £355m-365m."

Deutsche Bank also downgraded Fever-Tree, to ‘hold’ from ‘buy’ given margin pressure and limited visibility, and cut the price target to 900p from 3,060p.

DB pointed to material negative estimate revisions and limited visibility on cost and profitability.

"We continue to see attractions in Fever-Tree’s long-term revenue growth opportunity but the company’s track record of margin contraction leaves us unable to have conviction in upside from current levels," it said.

"We also believe that pressure on consumer spending from inflation may lead to downtrading and see Fever-Tree as exposed to that risk."