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Directors’ Deals: Fever-Tree non-execs buy low

Fever-Tree’s shares are among the most shorted in London, which is never a good sign. The short sellers look to be on to something, with the high-end tonics and mixers supplier’s share price down by 65 per cent over the past year, buffeted by cost headwinds.

In the company’s latest results, for the six months to June 30, revenues grew by 14 per cent to £161mn and full-year revenue and cash profit guidance from July was reiterated. European top-line performance was the standout, with sales up by 27 per cent to £52mn. But gross margin fell by 670 basis points to 37.4 per cent on the back of “ongoing, industry-wide inflationary logistics and product cost headwinds”.

Fever-Tree has struggled with US labour shortages, high freight and glass costs and glass availability. The company has consistently undershot its margin guidance, which suggests there are issues with management’s visibility over costs and profitability.

Fever-Tree’s travails are partly due to its capital-light business model, with most of its production and logistics outsourced. In less volatile macroeconomic conditions, this can help to keep costs low. In this high-inflation environment, on the other hand, it means the company is at the mercy of third-party providers.

Two of the company’s non-executive directors seem to think that the share price slump offers an attractive point to buy in. First, Jeff Popkin bought $383,000-worth (£345,000) of shares on September 29 on over-the-counter markets in the US. Then, Kevin Havelock picked up £342,000-worth between September 30 and October 3 in London. The directors will be hoping that a gloomy 2022 will soon turn into a brighter future for the shares. But we continue to hold that the company’s shares are too highly rated — they trade at a premium to beverage sector peers, at 34 times consensus forward earnings forecasts, according to FactSet.

Biffa boss boosts buyout return

Biffa was cleaning up the UK waste space and then a private equity firm swooped in mid-year with the same idea. This is not the first time it has gone private — the company listed in 2016 after an eight-year period away from public markets following an earlier private equity buyout.

This time there was no public bidding war pushing the price up, as there was in 2008 and, after months of negotiation between Biffa and buyer Energy Capital Partners, the two parties landed on a price below the previous offer, but high enough to keep shareholders happy.

ECP said it would back Biffa to grow both organically and through M&A, highlighting the industrial and commercial market as a prime area for this. Biffa’s I&C revenue was up almost two-fifths in the year to August 2, due in part to its £126mn acquisition of Viridor Waste Management last year.

Confirmation that a deal would go ahead came after the share price had fallen and Biffa had pushed back the deal deadline several times, so even at the lower price the agreement sent shares shooting back up again.

That was good timing for Biffa’s chief operating officer for resources and energy, Michael Davis, who sold 170,000 shares at 412p each, bringing in £700,400. And helpfully, the share price had held at the higher price even after the new 410p per share deal was announced.

The sale came in the same week as the company handed out share bonuses to management — Davis received just over 70,000 shares, while chief executive Michael Topham was handed triple that number. ECP has said it would shift shares owed under incentive plans to “transition awards”, paid out in cash.

The company declined to comment on Davis’s share sale.

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