Nick Train has taken “a leap in the dark” and initiated a position in Fevertree as shares in the tonic water maker continue to take a beating, joining other heavy hitters like Fundsmith that have jumped on the bandwagon.
Train announced he had added shares in the drinks business to his Finsbury Growth and Income Trust this month at the £1.8bn investment company’s AGM on Friday.
Fevertree is the second British brand Train has taken a punt on in the last seven months after buying Imperial soap maker PZ Cussons.
The drinks mixer has also been scooped up by Terry Smith’s small cap trust Smithson and features in Harry Nimmo’s £578.6m Standard Life Investments Smaller Companies Trust, although it has recently been one of his biggest detractors from performance.
Fever Tree and PZ Cussons ‘classic Lindsell Train ideas’
While he did not clarify the size of the position, Train implied he was taking his time and building up his position slowly. His position in PZ Cussons, which he initiated over the summer, is only 0.3% of net asset value, he said during the meeting.
The Lindsell Train co-founder said he had been eyeing Fevertree for years but held off investing because it was too expensive. So when the company took a 30% hit to its share price this January it “really did make us sit up and take notice”.
Shares in the tonic maker are down nearly 70% from its peak price of £38.63 a share in September 2018 and have lost 40% this year alone.
PZ Cussons’ share price has also continued plunging in recent years. It is now trading around 176p, down 60% from five years ago.
Train said the falls in share price were “justified” noting that both companies face “short-term if not medium-term challenges”. But on the other hand he said both groups have “excellent brands” that should see them through the long-term.
“To us, to me, these two companies are classic Lindsell Train ideas,” he told shareholders at the AGM. “The way we choose to work is when we see companies that own brands of this calibre and the share prices fall by that sort of degree, we have to get interested.”
Train takes ‘a leap in the dark’
During the Q&A portion of Friday’s AGM, one retail shareholder asked Train whether Fevertree was “a bit too fashionable” since it is overexposed to the now trendy gin market which could fall out of favour.
Train replied that there was an opportunity for Fevertree to grow brand equity in Europe and the US “which are at very different cycles in terms of their usage of booze and brands,” adding that there was an opportunity for it to cash in on the ginger ale and soda water market in America.
“Unquestionably a brand of global value and significance has been created. But in the end, you could be right,” he said.
“In the end, buying anything for the first time there is a leap in the dark. You can never be sure. But having kicked ourselves for not having bought it seven years ago and seeing the absolute collapse in the price and knowing the sort of value those premium soft drink brands companies can sustain, we felt it was an interesting opportunity without certainty.”
Tougher sticking by Pearson
Finsbury Growth & Income trust returned 23.1% over 2019 which was higher than the FTSE All Share’s gains of 19.2%.
London Stock Exchange, which saw its shares soar 90% after putting in a successful bid for data provider Refinitiv, was the biggest contributor to performance over the period, while academic publisher Pearson continued to be one of Train’s weakest holdings.
Train said Pearson is an example of what can happen when his buy and hold strategy goes wrong.
The firm’s chief technology officer Albert Hitchcock has told Train that Pearson’s digital platform will be a winning business model like a Netflix or a Spotify but the star manager admitted he is having a tougher time sticking by the firm.
“You’ve taken all this pain. Do you hang on to see whether Albert Hitchcock’s optimism for the future comes to fruition? You know, that’s the challenge, isn’t it?”
