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(Sharecast News) - Deutsche Bank initiated coverage of drinks companies Fevertree and Britvic on Tuesday with 'buy' rating.
The bank put a 1,600p price target on Fevertree, as it said the investment thesis is underpinned by a leading position in the premiumisation of the global mixer category.
"We believe in the long-term premiumisation opportunity and think Fevertree is well positioned given its first-mover advantage, strong brand credentials, high-quality products and capital-light business model," DB said.
"After two years of challenging performance, we are confident in a strong margin recovery this year and over the medium term and do not believe the recent margin dilution is structural.
"We also believe in the longer-term revenue potential of global mixer premiumisation. We do not think these are being fully captured in the current share price."
Deutsche set a 1,040p price target on Britvic. It noted that the company's most important segment is its GB business, which accounts for around 75% of group profitability.
"Underpinned by the Pepsi bottling contract and market leading position in squash via the Robinsons brand, we think there is further room for growth via market share gains and additional distribution," it said.
"This should be delivered against a well-invested asset base which has not yet realised its full margin potential. We think the streamlined overseas strategy is sensible, providing a more focused and simplified approach with higher margin potential."
DB said it thinks its forecasts of a 4.5% revenue compound annual growth rate and an 8.1% adjusted operating profit CAGR across FY23-27 look well underpinned, "reflecting an easing inflationary backdrop, operational leverage from additional volumes and efficiencies derived from a well-invested asset base".
In addition, healthy free cash generation should support further shareholder returns, which have contributed to a strong total shareholder return performance versus its peers over recent years.
