Britvic — Managing events for sustained returns

Britvic (LSE: BVIC)

Last close As at 27/03/2024

GBP8.21

4.50 (0.55%)

Market capitalisation

GBP2,037m

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Research: Consumer

Britvic — Managing events for sustained returns

In FY18 the UK sugar levy (SDIL) and CO2 shortage took the shine off a potentially landmark summer. Nevertheless, Britvic (BVIC) delivered good EPS growth of 6.4% on revenue up 5.1%. A five-year track record of 10% EPS CAGR, with debt within target, indicates earnings quality. Looking ahead, as the business capability programme ends, bringing planned returns, further growth and lower leverage may narrow the wide discount to peers.

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Consumer

Britvic

Managing events for sustained returns

Beverages

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7 December 2018

Price

806p

Market cap

£2,133m

Share price graph

Share details

Code

BVIC.L

Listing

LSE

Shares in issue

264.7m

Business description

Headquartered in the UK, Britvic is a soft-drink beverage company. The company participates in the marketing and manufacturing of popular brands including PepsiCo in Great Britain and Ireland. Through a number of acquisitions, Britvic has expanded its operations into Ireland, France and, more recently, Brazil.

Bull

Market leadership status: number one in branded still soft drinks and number two in branded carbonated soft drinks in Great Britain.

Growing share in an expanding underlying Great Britain market.

Further benefits of business capability programme in rationalising supply chain still lie ahead in FY19.

Bear

Mixed volume progress in Europe and International regions.

Brands are in part owned by third parties.

Net debt leverage of 2.2x, while in medium-term target range of 2–2.5x, may appear high. However, on reducing capex, leverage should fall through FY19 to consensus forecast of 1.7x in FY20.

Analysts

Paul Hickman

+44 (0)20 3681 2501

Sara Welford

+44 (0)20 3077 5700

In FY18 the UK sugar levy (SDIL) and CO2 shortage took the shine off a potentially landmark summer. Nevertheless, Britvic (BVIC) delivered good EPS growth of 6.4% on revenue up 5.1%. A five-year track record of 10% EPS CAGR, with debt within target, indicates earnings quality. Looking ahead, as the business capability programme ends, bringing planned returns, further growth and lower leverage may narrow the wide discount to peers.

Strong brands grow absolute value and share

GB stills revenue grew 4.2% y-o-y: Robinson’s is back in growth. Squash is the number one gainer on post SDIL switching, and Fruit Creations the number one soft drink launch in the last two years (Nielsen). J2O resumed growth on higher marketing, in-store action and success with the Spritz variant. Low/no sugar brands (7UP, Tango, R Whites, Purdey’s, Lipton) grew strongly. Pepsi, led by MAX, grew value share +120bp despite CO2 distortions. Only Fruit Shoot declined on competition and fewer price promotions. Meanwhile, brand innovation hit a record 7.1% of revenue.

Regions: Domestic weighting to growth

GB carbonates grew revenue (ex-SDIL) 10% and contribution 7.4% to £251.7m. Stills revenue grew 4.2% with Robinsons and J2O offsetting Fruit Shoot’s decline, and contribution 4.1% up at £116.6m. France’s contribution slipped 0.6% at £81.4m, but Ireland’s grew 15.1% including Ballygowan, MiWadi, Counterpoint and FY17’s East Coast acquisition. International grew contribution 48% to £10.2m, and more significantly, Brazil by 6.9% to £24.8m. Adjusted net debt was £575.5m, up £72.6m on deferred consideration, but leverage is 2.2x, within the target 2.0–2.5x.

Strategy: Good shareholder returns

Strategy has four pillars, to: generate profitable growth in core markets; realise global opportunities; step-change business capability; and build trust and respect. This has generated good returns with a five-year EPS CAGR of 9.8% and DPS CAGR of 8.9%.

Valuation: FY19e growth may compress discount

BVIC trades at FY19e P/E of 13.7x, a 34% discount to the All-Share Beverages 12- month index and a 39% discount to AG Barr (calendarised), reflecting its geared balance sheet, partial ownership structure and steady earnings growth. However, with sustained earnings and income delivery, those discounts may narrow.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

EV/EBITDA
(x)

P/E
(x)

Yield
(%)

09/17*

1430.5

246.1

164.7

52.9

26.5

11.0

15.2

3.3

09/18

1503.6

259.6

175.2

56.3

28.2

10.4

14.3

3.5

09/19e

1563.0

269.9

183.2

58.9

29.6

10.0

13.7

3.7

09/20e

1601.0

283.2

198.5

62.4

31.3

9.6

12.9

3.9

Source: Britvic, I/B/E/S. Note: *Adjusted.

Britvic is a research client of Edison Investment Research Limited.

Disclaimer

General disclaimer and copyright

This report has been commissioned by Britvic and prepared and issued by Edison, in consideration of a fee payable by Britvic. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

General disclaimer and copyright

This report has been commissioned by Britvic and prepared and issued by Edison, in consideration of a fee payable by Britvic. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2018 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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