Analysts downgrade Lindsell Train and Smithson holding

Analysts downgrade Lindsell Train and Smithson holding
(REUTERS/Neil Hall)

Analysts at Peel Hunt have downgraded the shares of Fever-Tree to reduce after the company issued a profit warning.

In an update last week (July 15), the drinks company cut its Ebitda guidance by 40 per cent due to industry headwinds, including labour shortages in the US, greater exposure to sea freight, and the cost and availability of glass.

UK and US sales were weaker than expectations, impacted by labour shortages in bottling plants and port congestions, which led to lower stock levels.

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The group’s shares crashed on the news, compounding a 57 per cent drop in share price in the first half of the year. The share price is now down almost 70 per cent since the start of the year.

Peel Hunt said: “Wider macro cost pressures look set to continue; moreover, given the lack of pricing action, we believe the brand does not have the pricing power it needs to recover in the short term…we have concerns over Fevertree’s ability to achieve its long term ambitions.”

Fever-Tree is one of the top ten holdings in Smithson, the investment trust run by Terry Smith’s Fundsmith, and it makes up part of the Lindsell Train UK Equity fund.

Last week Nick Train said the share price fall experienced by Fever Tree, alongside other portfolio holdings such as Hargreaves Lansdown and Schroders, was “temporary”.

“These financially-sound, highly profitable companies really ought to be successful investments, but these and other holdings seem friendless in current stock market conditions," he said.

"We buy more of them when we can.”

Terry Smith also professed optimism in the half year results for Fundsmith, saying he is “confident” the companies in his portfolio will survive and prosper “relatively well.”

Growth investing, the type favoured by Train and Smith, has stuttered after a decades-long bull run as central bank pumped stimulus into the economy to stabilise markets after the great financial crash in 2008 and the pandemic in 2020.

A reversal of these fortunes has been caused this year by rising interest rates and lower levels of quantitative easing directed by central banks in an attempt to quell high inflation.