Key Investment Highlights
 

1. Britvic PLC (LON: BVIC) is a market leader in Ireland and France for carbonated soft drinks and the largest supplier of soft drinks in Great Britain. The Company has also expanded its operations to the United States through franchising, licensing, and export. It is offering premium options across the portfolio and targeting the emerging needs of customers.

2. Financially, the Group delivered a sixth consecutive year of dividend and earnings growth in FY2019. The consistent performance across the geographic segments holds the potential to generate returns even in the future. The revenue CAGR has been 3.7 per cent between FY2013 to FY2019, while EBIT margin increased by 350 bps during the same period. Such incremental performance has yielded dividend CAGR of 8.5 per cent and EPS CAGR of 9.2 per cent. Moreover, the total shareholder return in 2019 outperformed the FTSE 250 and FTSE 100 indices.

3. Operationally, the Group is likely to improve margins for its business in France post disposal of Refresco division, which is expected to complete in 2020. Moreover, the completion of GB (Great Britain) Business Capability Programme has transformed the supply chain infrastructure, which shall yield significant cost savings in 2020.

4. From the industry perspective, the soft drinks market has historically proven to be resilient in any downturn. The long-term investment case remains intact for Britvic as it is operating with a strong financial position, while proactively managing cash flow and profitability.

5. As per the trading scenario, the share price is currently hovering near its 52-week low. Moreover, the stock is trading above its 50-day moving average, which makes an excellent opportunity to buy this value stock.

 
Britvic PLC (LON: BVIC) – Demonstrating Operational Agility to Navigate Tough Headwinds as it Reported a Robust First-Half Performance.

Britvic PLC is a United Kingdom-based manufacturer of soft drinks. Apart from Great Britain, the Company operates in Ireland, Brazil and France. It has a strong portfolio of brands, including Ballygowan, Teisseire, Tango, J2O, Robinsons, Fruité, Maguary, among others. The Group also has an exclusive agreement with PepsiCo and sells its various soft drinks brands. It exports its products in more than 50 countries. The Company has witnessed organic growth with substantial international expansion over the years. It launched its Initial Public Offer in 2005, and since then, it has made several acquisitions in Ireland, Brazil, and France. The Company was admitted to the London Stock Exchange on 14^th December 2005 and currently, a constituent of FTSE 250 index.

The Group is expected to release its full-year 2020  financial results on 25^th November 2020. 

Key Fundamental Statistics 
 


Segments at a Glance

For management purpose, the Group differentiates its business into the following six segments, which sells soft drinks into their respective markets:
 

1. GB carbs – Comprising the United Kingdom excluding Northern Ireland.

2. GB stills – Comparing the United Kingdom excluding Northern Ireland.

3. Ireland – Includes Republic of Ireland and Northern Ireland.

4. France.

5. Brazil.

6. International.
 

 
(Source: Presentation, Company Website)

Progress of Non-Financial Key Performing Indicators
 

1. The ‘great place to work index’ stood at 77 per cent in FY19 as against 73 per cent in FY18.

2. The ‘average calories per 250 ml’ drink reduced to 27.5 kcal in FY19 from 31.2 kcal from FY18.

3. The ‘manufacturing energy from renewable sources’ stood at 46 per cent in FY19 as against 28 per cent in FY18.
 

(Source: Presentation, Company Website)

 
Significant Developments of 2020

1. 1^st June 2020: In compliance with the Financial Conduct Authority’s guidance regarding transparency, the Company reports 266,825,352 ordinary shares in its issued share capital, of par value 20 pence each.

2. 27^th May 2020: The Company unveiled its strategy to battle the pandemic, which in a nutshell stated about retaining financial strength, maintaining operational agility, and safeguarding people and communities.

3. 31^st January 2020: The Group reported a refinancing of £400m through revolving credit facility with the potential to extend maturity until 2027.
 

Top Shareholders Statistics


(Source: Refinitiv, Thomson Reuters)

Financial Highlights (for the 26 weeks ended 31 March 2020) – Reflecting Strong Momentum and Robust Liquidity Position


(Source: Interim Results, Company Website)
 

1. Overall results reflected a good start to the year, with value share gains in Ireland, GB, and Brazil. The reported comparisons to the previous year depict two weeks less trading in 2020 (due to change in monthly reporting).

2. Despite the current uncertainty, the Group has reported the first half of 2020 revenue increase of 1.4 per cent(at a constant exchange rate basis) to GBP 698.8 million and adjusted EBIT growth of 9.4 per cent to GBP 75.7 million with adjusted EBIT margin increased by 80bps. The revenue growth led by local favourites – MiWadi, Pepsi, Robinsons, Maguary, 7UP and Tango.

3. For the first half of 2020, the profit after tax rose by 11.5 per cent to GBP 38.9 millionas compared with the corresponding period of the last year (28 weeks ended 14 April 2019: GBP 34.9 million).

4. Adjusted basic earnings per share (EPS) for the current period was 19.0 pence, an increase of 2.7 per cent (at actual exchange rates) on the same period last year. Reported adjusted EPS decreased by 14.8 per cent. Basic EPS for the current period stood at 14.7 pence, a growth of 11.4 per cent on last year.

5. Given the uncertain environment, the Board prudently deferred dividend decision.
 

Financial Ratios – Decent Performance with respect to Profitability and Liquidity Ratios against the Previous Year  
 
 

The reported gross margin of 51.1 per cent for the H1 FY20 stood higher than the industry median of 50.6 per cent. The reported Operating margin in H1 FY20 increased by 1.7 per cent to 9.0 per cent against 7.3 per cent reported last year for the same period. Net margin reported was 5.6 per cent for the first half of 2020, an increase of 1.1 per cent from the same period last year of 4.5 per cent. Return on equity for the first half of 2020 increased to 9.2 per cent against the industry median of 8.0 per cent. On the liquidity front, Britvic Plc’s quick ratio stood at 0.57x, and thecurrent ratio was 0.74x in H1 FY20. On leverage front, the asset-equity ratio and debt-equity ratio of Britvic Plc’s were 4.22x and 1.95x respectively, which were lower as compared to the corresponding period of the last year of 4.75x and 2.07x, reflecting that the group has improved on the leverage front with the reduction in debt component.

Share Price Performance Analysis

Daily Chart as on 1^st June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 1^st June 2020, at the time of writing (before the market close, at 10:00 AM GMT+1), Britvic Plc shares were trading at GBX 730, up by 1.60 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,079.00/GBX 536.00.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1: EV/Sales Approach (NTM)



To compare Britvic Plc with its industry median, EV/Sales multiple has been used. The industry median EV/Sales (NTM) multiple was 2.00x (approx.).

Method 2: Price to Earnings Approach (NTM)



To compare Britvic Plc with its peers, Price/Earnings multiple has been used. The peers are Greencore Group Plc (NTM P/E was 8.88), Coca Cola HBC AG (NTM P/E was 15.35), A.G.Barr Plc (NTM P/E was 20.21), Nichols Plc (NTM P/E was 20.41), and Cranswick Plc (NTM P/E was 22.13). The Average of P/E (NTM) of the company’s peers was 17.40x (approx.).

Valuation Metrics

(Source: London Stock Exchange)

As on 30^th April 2020, the Price to Sales multiple of the Britvic Plc was around 1.3x and stood lower as compared to the industry. It reflects shares of the Company are undervalued against its peers.

BVIC V/S FTSE-250 Price Performance – 2 Years


(Source: Refinitiv, Thomson Reuters)

In the last two years, Britvic Plc share price has delivered negative 9.40 per cent returns as compared to negative 17.88 per cent returns of FTSE-250 index, which shows that the stock has outperformed the index during the last 2 years.

BVIC Total Return- 5 Years


(Source: Refinitiv, Thomson Reuters)

In the last five years, Britvic Plc has delivered a total return of 15.78 per cent while the FTSE All-share index has delivered a return of 6.91 per cent.

Industry Outlook

As per Technavio’s report (published in 2018), the market size of global soft drinks is expected to grow by USD 316 billion between 2019 to 2023. The key market trends include the adoption of plastic packaging, demand for sugar-free & healthier drinks, premium ingredients for better quality, and availability of products online. Coca-Cola holds the largest market share in the industry, followed by PepsiCo. In 2020, the industry can face continuous volatility in sales due to a change in consumption patterns, while cost can be impacted in the short run due to supply chain disruption.

Growth Prospects and Risk Assessment


(Source: Presentation, Company Website)

The above image shows the group’s decent track record of delivery and strong momentum from the period 2013 to 2019. The Group witnessed strong growth in core Britvic categories of flavoured concentrates and low/no sugar carbonates. In Ireland, the strong growth in At?Home and On?the?Go, led by MiWadi, Ballygowan and Pepsi. The Group has a portfolio of good brands, which would enhance the growth trajectory of the company, and has the potential to deliver value to its investors. Some key strengths that drives growth in the future: it operates in a growing and resilient category and understands customer needs; a portfolio weighted towards low and no sugar carbonates; a portfolio of market-leading brands; growing international presence; robust market position, and long-term track record of growing investor value.

During the financial year 2019, the Group expanded its brand portfolio by introducing new categories and launching premium categories in existing markets. In Great Britain and Ireland, the Group has a portfolio of leading owned brands, while the agreement with PepsiCo makes them a renowned bottler. Its brands are available in over 50 countries now, while they generate 39 per cent of revenue from outside Great Britain.


(Source: Presentation, Company Website)

Further, to navigate the short-term headwinds presented by COVID-19 mayhem, the Group has substantial liquidity, which can be seen in the picture below:


(Source: Presentation, Company Website)

Regarding the risk, the principal risk revolves around failure to evolve portfolio considering the rising health concerns, inventory shortage due to supply chain disruption presented by COVID-19 chaos and risk associated with climate change.
 
Business Outlook Scenario

Britvic remains resilient in the face of tough external circumstances. The Group has delivered a robust start to the year 2020. However,it expects conditions will stay challenging, driven by macroeconomic uncertainty and coronavirus outbreak. The Group has delivered a healthy first half of 2020 performance. BVIC entered the Covid-19 crisis period with decent growth momentum. The Company has a solid balance sheet and benefitting from the recent re?financing of RCF (Revolving Credit Facilities) to navigate the pandemic. It is maintaining high service levels to customers to ensure brand availability remains consistent and adapting the commercial plans to respond to channel shifts. Britvic is also well placed to respond to the impact of COVID-19 on the consumer. The soft drinks producer confirmed the impact on earnings had been GBP 12–18 million per month as announced on March 23 but expects this will improve as the economy reopens. The Company has gained a reputation for being an agile, strong business that consistently creates value for all its investors.


(Source: Presentation, Company Website)

The company’s revenue CAGR stood at 3.9 per cent (2013 to 2019). The adjusted EBIT margin has surged by 350 bps (2013 to 2019). This has translated into an earnings per share CAGR of 9.2 per cent and a dividend CAGR of 8.5 per cent.

Based on the decent growth prospects, and supported by valuation undertaken using the above two methods, we have given a “BUY” recommendation at the closing market price of GBX 718.50 (as on 29^th May 2020) with lower double-digit upside potential based on 2.00x NTM EV/Sales (approx.) on FY20E sales (approx.) and 17.40x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted data and peer information have taken from Refinitiv (Thomson Reuters).
* The “Buy” recommendation is also valid for the current price as covered in the report as on 1^st June 2020.

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