UK-listed beverage companies spent a good part of 2017 dealing with the upcoming sugar tax. From April 2018, drinks with more than five grams of sugar per 100ml will incur an 18p per litre levy, rising to 24p per litre for those with more than eight grams per 100ml. The major drinks makers have been busy reformulating their products so that they are exempt from the tax. The timing of the sugar tax is somewhat ironic, as the recent removal of EU quotas could make the sweet stuff cheaper just as those companies that use it as an ingredient are cutting back.
The impact of the EU sugar tax will depend on how much the levy puts consumers off buying affected drinks. But some companies aren’t taking any chances. AG Barr (BAG) is aiming for 90 per cent of its brands to have less than five grams of sugar per 100ml by the end of January 2018. New products such as a low sugar version of Irn Bru are meant to encourage consumers to continue to buy their products without having to pay a levy and have the added benefit of less sugar – not that its core Scottish customers all welcome the change. Similarly, Britvic (BVIC) is pushing its low or no-sugar options, such as Pepsi Max. It’s also looking to expand overseas to reduce its reliance on the UK market, which currently generates 41 per cent of sales. International sales improved 13.5 per cent in the year to October 2017, and could increase further this year thanks to its acquisition of Brazilian drinks maker Bela Ischia.
Fevertree Drinks (FEVR) is also targeting international expansion, not for sugary reasons, but in an attempt to maintain its recent blistering performance. The shares have shot up by roughly 1,500 per cent from their 134p listing price in November 2014. The maker of high-end mixers is also looking to move into drinks that can accompany dark spirits in addition to its tonic heritage.
Judging by a trends report from alcoholic beverage data provider IWSR, that strategy seems sensible. In 2017, the market specialist found that US spirit volumes rose 2.3 per cent, despite total alcohol consumption being flat. Whiskey was the fastest-growing drink, with tequila also proving popular. That bodes well for Diageo (DGE), which recently pointed to US spirits and scotch as areas of focus and, last year, bought George Clooney’s tequila brand Casamigos for $1bn (£720,000).
| Company | Price (p) | Market value (£m) | PE Ratio | Yield (%) | 1-year change (%) | Last IC view |
| Barr (Ag) | 666 | 769 | 21.8 | 2.2 | 30.6 | Hold, 618p, 26 Sep 2017 |
| Britvic | 800 | 2,111 | 16.2 | 3.3 | 36.5 | Buy, 701p, 5 Dec 2017 |
| Coca-Cola Hbc (Cdi) | 2,360 | 8,669 | 28.0 | 1.6 | 32.6 | na |
| Diageo | 2,618 | 65,027 | 27.9 | 2.4 | 22.8 | Buy, 2,442p, 21 Sep 2017 |
