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The market has become used to Fever-Tree overpromising and underdelivering on margin guidance. The premium tonics supplier’s reiteration in its interim results last week of its full-year gross margin forecast range of 31 to 33 per cent was a pleasant surprise for investors. The company has also guided for a cash profit margin of 15 per cent, helped by “softening inflationary headwinds”.
But cost pressures (along with a £3mn exceptional charge from US production issues) dragged down statutory pre-tax profits by 92 per cent in the six months to June 30, with management referencing “materially elevated glass costs” and investment bank Liberum highlighting painful double-digit percentage hikes in packaging and ingredient costs. Gross margin came in at 31 per cent, a 670-basis points fall from the previous year.
Signs that the cost environment is starting to improve are therefore greatly welcome for shareholders. A tender has been completed for UK and Europe glass needs, which management hopes will lead to “significant year-on-year improvements” in costs. Freight costs are now significantly lower. Combine these factors with higher prices, and there is hope for margins.
Price rises helped revenue up by 9 per cent in the half, but this was a mixed top-line performance. US sales rose by 40 per cent and Europe sales climbed by 7 per cent. On the other hand, UK sales were flat and Rest of World sales plunged by over a third.
Analysts at RBC Capital Markets raised their target price this week from 1,000p to 1,300p but warned that “localising US production will prevent a complete margin turnaround”.
Non-executive director Kevin Havelock also seems to think brighter days lie ahead for the company. He bought £130,000-worth of shares on September 14 at an average price of 1,269p.
Whether the narrative of improving costs is enough to convince investors about the premium valuation is another matter. The shares trade hands at 46 times consensus forward earnings, according to FactSet, a difficult-to-justify rating given a volatile growth outlook.
Incoming Bridgepoint chief executive buys shares
The state of private equity since interest rates started climbing upwards has been a topic of regular commentary this year, and there are still only tentative signs of life for IPOs, the primary exit vehicle for private equity investments.
So the move by Bridgepoint group managing partner Raoul Hughes, who will become chief executive next month, to buy a total of £158,000-worth of shares was noteworthy for the specialist private equity asset manager.
It may be a sign that management is calling the bottom for Bridgepoint’s share price, which has been among the biggest investment management fallers over the past 12 months, down 20 per cent as the fashion for private equity investments disappeared along with the cheap money that had fuelled it.
The purchase also comes a short time after Bridgepoint announced the acquisition of Energy Capital Partners, a specialist in energy infrastructure investment in Asia-Pacific and the US. Investec reckons the deal brings Bridgepoint’s fee-charging assets-under-management up to €34bn (£29bn). While the deal does not come with any advertised synergies or cost savings, it does significantly diversify the business in both its basic offering and geographic spread.
So can Bridgepoint look forward to a better performance? This will depend on the state of its underlying markets, but asset managers generally have seen a better year of inflows. Investors will know more, in that respect, when Bridgepoint announces a trading update later in the autumn. But the company seems to be undertaking a series of corporate actions to reposition itself.