Fevertree Drinks (LSE:FEVR) shares haven’t worked out well for UK investors recently. But the stock jumped 25% last week on news of an investment from the US – and there might be more to come.
I’m very ambivalent about the announcement that caused the stock to surge. However, news that a director has been buying a lot of shares since then has caught my attention.
US expansion
The reason Fevertree shares have been climbing is because US beverage giant Molson Coors has made an $88m investment for 8.5% of the business. And there are some obvious benefits for the UK firm.
The company has been looking to expand across the Atlantic, and Molson Coors has a huge distribution network. So access to this – plus marketing support – could be a big benefit.
On top of this, Fevertree’s balance sheet is in pretty good shape. As a result, the company intends to return cash raised in the $88m investment to shareholders via share buybacks.
This, however, is where I start to get mixed feelings. The firm has just sold 8.5% of its shares at £6.93 per share and plans to use the cash to launch a buyback at around £7.78.
This makes the move risky for Fevertree – selling things at one price and then buying them at a higher one is a way of losing money. Investors need to hope the distribution benefits are worth it.
They could well be – and growth in the US could give overall sales a huge boost. But the immediate winner is Molson Coors, which now owns a lot of shares worth 25% more than it paid for them.
Insider buying
Since the Molson Coors deal, however, something else has happened. Fevertree’s Chief Financial Officer Andrew Branchflower has bought 31,688 shares in the business.
The average price on this transaction is £7.85 – roughly where the stock is now – making the overall investment worth almost £250,000. That’s a serious investment by a company insider.
Branchflower isn’t new to the firm either – he’s been with the business for over a decade. And that makes me think that he’s taking the new partnership with Molson Coors very seriously.
The people that spend all their time working at a company will almost always have a better view than those that don’t. So when they start using their own money to buy shares, it’s worth paying attention.
I wouldn’t buy shares in any business just because someone else is doing so. And that’s true whether the person in question is Warren Buffett, a company director, or anyone else.
I do, however, think this is something for investors who are interested in the stock to pay attention to. It might even be a sign the market is underestimating the firm’s prospects, even after a 25% gain.
Should I buy?
Fevertree’s latest deal involves selling shares at one price before buying them back at a higher one. That means there’s a risk it could end up looking silly if things don’t pan out as expected.
There’s a lot more to the deal than this and if things go well, it could look like a brilliant move. And management putting its money where its mouth is definitely makes me want to take a closer look.
