7:59 cut – FEVR, UCG, BKS, SEE

FEVR – H1 2019 Results

Fevertree is the sort of share that small investors dream about. Even before flotation the story of how their founders created their premium tonic water mixer in 2005 was well publicised. Their products are easily to understand and very easy to research. Most importantly of all, the share price went from a IPO price of 134p to approach £40 in Autumn 2018, a 29-bagger in 4 years, and without a pullback of much more than 25%.

As the valuation has increased, so has volatility. In the depths of the Great AIM Bear Market of ’18, they fell to £22, then staging a valiant recovery to £32 before gravity reasserted itself with a fall back to below £21. Yesterday they closed off their year-lows at £23.

Recent updates have made the point that the summer of 2018 was a an exceptionally strong year for Gin sales in the UK and that it would be challenging to beat sales in 2019. UK-based investors will have been well aware of this year’s relatively poor spring / early summer weather and so expectations were not high for H1.

Nonetheless today’s figures are likely to be a disappointment to many, with UK H1 yoy growth slowing from over 70% to below 5%. The UK is twice the size of their next largest market, Europe, which slowed from 17% to 12%. The USA was a bright spot, with growth accelerating from 14% to 31% following new distribution and marketing arrangements, but this market is such a small proportion of sales that it would take several years of such growth counteract the slowing UK.

Although they are diversifying away from Gin, most of their sales are still of Tonic Water. There are several indications that the market for Gin in the UK and perhaps elsewhere may have peaked.

UK Interest in “Gin”, Google Trends

[Edit: As can be seen from the above graph (accessible here), FeverTree have been benefiting from a massive up-trend in the interest in Gin in the UK, partly of its own making, but this has tailed off recently. The graph for Worldwide interest shows a flattening rather than a fall this year.]

The current valuation appears to be more detached from likely prospects than at any time in the company’s life on AIM. I will be selling my small remaining position this morning.

United Carpets (UCG) – FY 2019 Results

There are a number of UK quoted carpet manufacture and retailing companies. They often appear cheap and some excellent returns have been made in the past. To some extent there is helpful read-across between companies. On the retailer side, nobody is cheaper (in every sense) than UCG, especially when adjusting for cash.

After a profit warning in March, revenue of £24.0m is ahead of forecasts of £22.7m and EPS is in line. Like for like sales were flat with one new store opened. Cash was down on the maintained dividend.

The outlook seems fairly positive, with 4.6% LFL sales growth in the first 16 weeks, reminders of one-off factors in 2018 and the potential for new stores to mature. Unlike FeverTree, United Carpets benefits from bad weather.

A modest earnings upgrade for 2020 looks like it may be on the cards, although Brexit is cited as a risk. I already have a moderate holding and, especially given the small size of UCG, I am not looking to add or reduce at this stage.

Beeks (BKS) – Tier 1 wins / Update

Congratulations to Beeks for signing a second significant Tier 1 customer, with a potential for a third after a proof of concept.

They confirm FY2019 is in line with significantly reduced forecasts. As is common practice, they do not mention FY2020 at this stage, but today’s announcement is “broadly” in line with my expectation a June/July signing and my expectation of a FY2020 miss remain.

[Edit: I don’t currently hold]

Seeing Machines (SEE) – Add-on contract

An existing customer is adding SEE’s driver monitoring solution to additional models. It is reassuring that their customer is happy, and hopefully this presages further such announcements, but contract sizes remain small and the politics for mandating such equipment uncertain. A contract with a new major customer would have been better news.

Despite the recent fundraise, SEE remains a punt and accordingly I have a small position only.

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