Britvic PLC (LON: BVIC) – An Extended partnership with PepsiCo in Great Britain till 2040.

Britvic PLC is an FTSE 250 listed United Kingdom-based manufacturer of soft drinks. Moreover, BVIC is strongly present in Britain, Ireland, Brazil, and France. The Company has an enriched portfolio of brands, including Ballygowan, Teisseire, Tango, J2O, Robinsons, Fruité, Maguary, and many more. Furthermore, BVIC has an exclusive agreement with PepsiCo and sell its various soft drinks brands. It exports the products to more than 50 countries. BVIC launched its Initial Public Offer in 2005, and since then, it has made several acquisitions in Ireland, Brazil, and France.

On 18 May 2021, BVIC will release the interim results.

(Source: Company website) 

Recent Trend of Dividend Payments

(Source: Company Website)

Britvic has adopted a progressive dividend policy by maintaining an adequate level of dividend cover. The Company had paid the FY20 final dividend of 21.6 pence per share on 03 February 2021. The ex-dividend date was 17 December 2020. BVIC had demonstrated a 28% drop in total FY20 dividend as compared to the total FY19 dividend.

Growth Prospects and Risk Assessment

BVIC remained confident regarding its long-term prospects and anticipating rebuilding investment in 2021 well supported by its long-term growth drivers, including innovation and marketing. Moreover, the Company is a market leader in Ireland and France for carbonated soft drinks and the largest supplier of soft drinks in Great Britain. BVIC has also expanded its operations to the United States through franchising, licensing, and export.

(Source: Company presentation)

BVIC has extended carbonates relationship with PepsiCo in Great Britain till 2040.

However, there are certain potential risks that can impact the business, such as bribery & corruption risk, failure to maintain strong relationships with key customers, supplier failure, climate change, cyber-security, technology & infrastructure risk, changes to exchange, interest or tax rates, and product quality & safety. Moreover, BVIC had an increased risk of packaging regulation and risk of contaminated product.

Industry Outlook Dynamics

According to Grand View Research’s latest report, the market size of the global carbonated beverages industry was USD 406.89 billion during 2019. Moreover, the industry is expected to grow at a CAGR of 5.1% from 2020 to 2027. The rising popularity of soda drinks among the young generation would increase the demand for the carbonated beverages market in the near term. Cola Flavour represented 55.8% of the total revenue during 2019.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of Britvic Plc.

A Glimpse of Business Segments

(Source: Company Website, chart created by Kalkine Group)

Q1 FY21 Trading Update (for the period ended 31 December 2020, as on 28 January 2021)

• The total revenue for Q1 FY21 stood at £328.1 million. Moreover, on a constant currency basis, the revenue (excluding the disposal of the French private label juice business) was down by 5.8% against the previous year, while the reported revenue decreased by 9.8% YoY.
• The Company saw a growth in GB and Brazil markets, with extending At-Home share gains.
• As per the geographical location, GB total revenue reduced by 4.1% YoY, with an increase in At-Home of 11.9%. Brazil's revenue continued to increase strongly at +25.6%, whereas comparable Rest of World (RoW) revenue declined by 19.3%.
• The Company has put pressure on sales in the hospitality sector, due to the subsequent national lockdown measures.
• It also made considerable progress executing the strategy, and it is well-positioned to drive future growth and returns.

Financial and Operational Highlights (for the year ended 30 September 2020 (FY20), as on 26 November 2020)

(Source: Company Website)

• The Company witnessed positive trading momentum in H1 FY20 with an increase in revenue, adjusted EBIT and margin.
• Full-year revenue was down by 6.8% year-on-year (YoY), on a constant currency basis (reported down 8.6%), while adjusted earnings per share decreased by 27.8% YoY, on an actual basis. A higher effective tax rate drove the decline in adjusted EPS.
• Profit after tax surged by 16.9% YoY, and free cash flow stood at £90.0 million.
• The Company has reduced its net debt balance by £45.8 million, with adjusted net debt to EBITDA ratio of 2.4 times.
• Britvic witnessed a strong balance sheet and good liquidity position.
• In Brazil, the Company has shown double-digit revenue growth and market share gain, due to both core brands and innovation.
• In the GB At-Home channel, the Company gained market share, with a value growth of 11.3% as compared to market growth of 1.5%, driven by the core brands of Robinsons, Pepsi, Tango and 7UP.
• It also allows BVIC to broaden the portfolio further by taking on the Rockstar energy brand, with Purdey’s to the mainstream energy segment.
• Britvic has a strong financing platform, with £400 million of undrawn bank facility (which matures in 2025).
• The Board has confirmed a final dividend per share of 21.6 pence and the final dividend for 2020 will be paid on 3 February 2021.

Financial Ratios (FY2020)

Share Price Performance Analysis

On 08 March 2021, at the time of writing (before the market close, at 10:00 AM GMT), Britvic PLC shares were trading at GBX 829.50, down by 0.18% against the previous day closing price. Stock 52-week High was GBX 889.00, and Low was GBX 536.00, respectively.

From a technical standpoint, 20-day SMA (GBX 816.2) and 20-day EMA (GBX 814.3) support an upside potential.

In the last ten years, Britvic PLC’s stock price has delivered a return of ~193.11% as compared to ~78.49% return of FTSE 250 index and a ~151.61% return of FTSE All-Share Food & Beverage index, which shows that the stock has outperformed the benchmark index and the benchmark sector.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Peers used in the valuation methodology (Price/NTM Earnings)

Business Outlook Scenario

BVIC had highlighted that the trading performance during the first quarter of 2021 remained impacted by the Covid-19 pandemic. Moreover, the revenues were put under pressure with the introduction of national lockdown measures and pre-Christmas Covid-19 restrictions in Ireland and Great Britain. However, the Company had continued to further boost its market share in the At-Home segment for Great Britain and Brazil. Also, the Company had depicted a modest revenue growth of 25.6% in Brazil during Q1 FY21 due to both core brands and innovation. Furthermore, BVIC believed that restrictions in the hospitality sector would continue to persist during Q2 FY21 as well.

BVIC would continue to be disciplined towards cash management and remained confident in its strategy & momentum seen in open channels. Britvic is looking to make the investment in people and brand in the H2 FY21. Overall, Britvic witnessed a strong balance sheet and adequate liquidity position required to drive sustainable growth in the future.

(Source: Company Presentation)

Considering the consistent track record of agility and resilience, robust liquidity position & solid balance sheet, new 20-year agreement with PepsiCo in Great Britain, excellent progress made on the strategic initiatives, expanding business in Brazil, completed asset sale in France, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Britvic Plc at the current price of GBX 829.50 (as on 8 March 2021, before the market close at 10:00 AM GMT), with lower-double digit upside potential based on 20.64x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

* The dividend yield is subject to change as per the stock price movement.

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