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Britvic hit by slump in out-of-home channels

The soft drinks maker has seen sales pull back sharply through its out-of-home channels, but a new agreement with PepsiCo provides encouragement
November 26, 2020
  • Out-of-home channels suffer due to social restrictions under the lockdowns
  • A new production, distribution, and sales agreement with PepsiCo
IC TIP: Hold at 829p

Statutory figures flattered Britvic (BVIC) at its September year end, as a sharp fall in admin expenses meant that operating profit at £130m was in line with the prior year. Look under the bonnet and things are more problematic, a reflection of lockdown restrictions put in place at bars, restaurants, cinemas and other entertainment venues. Once prior year restructuring and amortisation costs are taken into consideration, together with a £31.2m impairment on assets held for sale, then adjusted profits were down more than a fifth year-on-year.   

Britvic, whose brands include Tango, Robinsons and kids’ favourite Fruit Shoot, has had to contend with a marked decline in its out-of-home channels in the UK due to the lockdowns.

The group has had to implement safeguards assuming the UK and European Union (EU) fail to strike a free trade deal, chief among them plans to increase inventory levels to partially offset the risk. Management confirmed that the potential tariffs on raw material imports from the EU in the absence of a free trade agreement would only have a modest impact on the group.

In a post period-end fillip for investors, the group signed a new agreement with PepsiCo, for an exclusive 20-year franchise for the production, distribution, marketing and sales of the US giant’s carbonated soft drink brands in the UK.

Adjusted net debt came down through the period, settling at 2.4 times cash profits, and management has confirmed there remains “significant liquidity headroom under [Britvic’s] existing debt facilities at each month end” based on all the risk management scenarios modelled by the group. The shares are around 25 per cent adrift of Morgan Stanley’s discounted cash-flow valuation, but risks predominate through the first half of the current financial year. Hold.

BRITVIC (BVIC)   
ORD PRICE:829pMARKET VALUE:£ 2.21bn
TOUCH:829-830p12-MONTH HIGH:997pLOW: 536p
DIVIDEND YIELD:2.6%PE RATIO:23
NET ASSET VALUE:141p*NET DEBT:£635m
Year to 30 SeptTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20161.4315243.824.5
20171.4313942.426.5
20181.5014644.428.2
20191.5511030.630.0
20201.4111135.621.6
% change-9+1+16-28
Ex-div:17 Dec   
Payment:03 Feb   
*Includes intangible assets of £409m, or 153p a share