Britvic looks fully valued

Britvic (BVIC) delivered a resilient interim performance as the soft drinks company boosted its revenues with only a minimal decline in volumes in its key UK market.  

Volumes in the UK, which contributed 69 per cent of the company’s sales in the period, were down by only 0.8 per cent and there was encouraging volume growth of 1.2 per cent in the second quarter. UK sales rose by over 10 per cent to £544mn, with a standout performance from the Tango brand, which enjoyed year-on-year sales growth of 39.7 per cent. Pepsi Max sales were also robust, with growth of 9.2 per cent. 

But the volume showing was weaker in Britvic’s international locales. Volumes fell by over 7 per cent in Brazil, which the company pinned on the impact of poor weather on crop supply, though revenues were still up by 17 per cent to £76mn. And volumes contracted by 2 per cent in other international markets, where sales rose by 8 per cent to £174mn. There was a particularly weak half in France, a market where it has been challenging to pass on higher prices.

But with Britvic's strong brand equity, minimal volume declines (other than in Brazil) and revenue growth indicate that most consumers seem happy to pay higher prices anyway at a segmental level. Overall volumes rose by 0.6 per cent in the second quarter. 

There was a mixed performance from premium and alternative products, which the company hopes will boost margins. Sales and volumes of the higher-margin Teisseire range fell. But plant-based brand Plenish “continued to build scale”, according to the board.  

Strong cost control supported margins in the half, with expenses up by £1mn in what is a tough inflationary environment. The adjusted cash profit margin rose by 50 basis points to 10.7 per cent.

Britvic’s debt position is something to keep an eye on, given that this makes it somewhat of an outlier against drink company peers. A free cash outflow of £9mn in the period didn’t help, though an increase in the dividend and a further share buyback programme of up to £75mn makes it clear that the board is comfortable with the balance sheet.

Analysts, according to consensus forecasts on FactSet, value the shares at 16 times forward earnings, slightly more expensive than the 5-year average of 15 times. Broker Peel Hunt said that while the shares “still offer good value for such a defensive play, we think the value is full for now”. We think that is the correct conclusion. Hold.

Last IC view: Hold, 797p, 23 Nov 2022