Fundsmith investment trust Smithson has become the latest small-cap manager to buy Fevertree as the drinks business’s share price falls to a more palatable level.
Smithson manager Simon Barnard noted in the July factsheet for the trust that Fevertree shares were down 47% from their 2018 peak due to a lukewarm reception to a trading update. This resulted in “an attractive valuation given our estimation of the business quality and growth prospects for the company,” Barnard said in the trust’s latest update.
Within the investment trust universe, the Independent Investment Trust already holds a 6.7% weighting in Fevertree, while SVM UK Emerging has a 3.8% allocation. Fidelity Investments currently owns the largest stake in the business at 8.4%, while Aberdeen Standard Investments and Morgan Stanley Investments also own 6% each.
Fevertree’s share price has skyrocketed in value since the company’s IPO in November 2014, growing 23 times in under four years from 165p to £39.34 a share in September 2018.
A second chance for investors who missed the boat
The Share Centre investment research analyst Helal Miah viewed the recent volatility in Fevertree’s shares “as a second chance for investors who may have missed the boat a year ago”.
“While we do not have a formal recommendation on the shares, we do believe Fevertree at current prices offers investors good prospects,” he said in an analyst note. “The dividend yield is very modest but the rise in the payment by 23% is encouraging.”
Miah added that following the depreciation in share price, the fizzy drink maker was on “a far more palatable multiple” of 32x price to earnings (P/E) for 2020.
After snapping up Fevertree, Smithson has 30 holdings. The £1.3bn trust aims to invest in between 25 to 40 small and mid-sized companies with a market capitalisation between £500m and £15bn.
In July the trust returned 3.1% on a share price basis. So far this year shares have risen 24.6% over double the IT Global Smaller Companies’ 9.3%, according to data from FE.
| 1m | 3m | 6m | |
| Smithson Investment Trust | -1.3 | 4.4 | 18.9 |
| IT Global Smaller Companies | 1.1 | 5.2 | 6.8 |
| NAV | 0.5 | 6.2 | 20.3 |
Source: Trustnet; total return in sterling calculated on 5 August
Smithson Investment Trust shattered the record for the largest initial public offering of a UK investment trust, raising £822.5m at launch in October 2018, a title formerly held by Neil Woodford’s Patient Capital Trust.
Its overwhelming popularity came even though Fundsmith boss Smith is not a named manager on the fund, which is run by Barnard and assistant manager Will Morgan, who joined from Goldman Sachs Asset Management last year.
The trust has had a stronger run recently than the Fundsmith Emerging Equities Trust, which has been struggling to get a hold on a widening discount, triggered by news that Smith would be stepping back from the helm.
