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News of Fever-Tree Drinks’ tie-up with the US’s second-biggest brewer Molson Coors proved just the tonic for investors in a company whose shares had been steadily sliding for most of the previous 12 months.
The deal, which sees Molson Coors taking on the selling and distribution of Fever-Tree’s products in the US, was well received by the market — and not just because Fever-Tree is ploughing the £71mn in proceeds from the sale of an 8.5 per cent stake to Molson Coors into share buybacks. The shares jumped by 20 per cent on the day the deal was announced.
It’s easy to see why. Molson Coors has a huge reach in the US and a desire to extend its reach into both premium and non-alcoholic products.
The agreement has been structured as a licence deal, with Fever-Tree receiving royalty fees based on its share of the profit generated in the US (with minimum payments guaranteed for five years). Fever-Tree retains control over the brand and product innovation, but Molson Coors will manage sales, production, distribution and marketing in the US.
Fever-Tree told investors the agreement would de-risk its transition to local production stateside and unlock economies of scale, while also reducing its exposure to transatlantic freight costs.
Although an initial period of heavier spending (as it transitions US operations and increases its marketing contribution) will hit the company’s bottom line this year, Panmure Liberum analyst Anubhav Malhotra argues that over the longer run the deal “significantly improves the overall profitability, cash generate and return on common equity of the Fever-Tree business”.
The directors certainly look bullish. Three of them increased their holding on the day of the announcement, with chair Domenic De Lorenzo adding almost £70,000 worth of shares, chief financial officer Andy Branchflower buying about £250,000 worth, and non-executive Kevin Havelock spending almost £1mn.
Franchise Brands’ co-founders build up stakes
Plumbing, environmental and industrial services company Franchise Brands has set its sights high. Having recently appointed its first group chief executive, Peter Molloy, the Cheshire-based firm is eyeing a promotion from Aim to London’s main market.
The group, which owns seven van-based service franchises, including plumbing group Metro Plumb, has doubled in size over the past two years following the £210mn takeover of hydraulic hose franchiser Pirtek. It now generates annual sales of about £400mn.
After an expansionary period, the focus is now on paying down debt and integrating all businesses to a single IT platform. The idea is to boost cross-selling, cut costs and drive up both operational gearing and earnings growth.
The company’s ultimate goal is to double system sales to £600mn and adjusted ebitda to £60mn by 2027. But with shares down 13 per cent over the past year, shareholders haven’t bought into this plan. An update from Franchise Brands last week justified some of this caution: the company said adjusted ebitda for 2024 would miss market expectations despite record system sales across its key divisions.
This was due to slightly softer system sales growth overall, set against the fixed cost base of its core franchise businesses. Demand for reactive services has held firm, but project work and other discretionary spending, particularly in the UK’s construction and plant hire sectors, remains weak. Management said it retains a “cautious view” on the timing of the recovery.
Co-founder and non-executive director Nigel Wray has been buying shares again. He spent £47,500 on 35,000 shares at the end of January, albeit this comes just four months after he sold almost a third of his total holding for £11mn.
Fellow co-founder and chair Stephen Hemsley, along with senior independent director Peter Kear, made purchases of the same amount. Hemsley’s latest buy raises his stake in Franchise Brands to 11.8 per cent, while Wray now holds 8.2 per cent.
