Business Overview
Britvic PLC (LON: BVIC) is a Hertfordshire, United Kingdom-based leading soft drinks group, which has developed a robust portfolio of its own iconic brands, comprising Tango, drench, Ballygowan, Fruité, DaFruta, Robinsons, J2O, MiWadi, Teisseire, and Maguary. All the brands of the company are operating from Great Britain (GB), France, Brazil and Ireland. In addition, in Ireland and GB, the group sells and produces several PepsiCo’s famed soft drinks brands, comprising Mountain Dew, 7UP, Pepsi, and SoBe, under special contracts with PepsiCo. The group is working with carefully chosen partners to franchise the brands and exporting to more than 50 countries. It is the number two supplier of branded carbonated soft drinks in Great Britain and the largest supplier of branded still soft drinks. The company is also an industry leader in France and Ireland. Britvic PLC, through franchising, licensing and export, has been expanding its reach into several other territories, mainly in the United States. The management team of the group has effectively developed the business through an international expansion based on building and creating scalable brands and a clear strategy of organic growth. On the London Stock Exchange, the company is listed under the code BVIC. It is also a part of the FTSE 250 index.

On 31st January 2020, the company will announce the trading statement for Q1 FY20.
 
Management

John Daly is the Non-Executive Chairman of the group’s Board. He has been appointed as a Chairman of the board since September 2017. Simon Litherland holds the responsibility of the Chief Executive Officer (CEO) since February 2013, and he joined the company as Managing Director, GB in September 2011. Joanne Wilson was appointed as Chief Financial Officer (CFO) in March 2019, and her appointment to the group’s Board became effective in September 2019.

Key Statistics



Top Shareholders 
 
 

Recent News

On 19^th December 2019, the group has joined forces with other international businesses to promote a ground-breaking recycling technology that will assist to bring about a circular economy for plastics.

On 10^th December 2019,the company announced new carbon emissions reduced targets to help in tackling climatic changes.

Business Segments

The operations of the group are differentiated in five geographical segments, namely Great Britain, Ireland, France, Brazil and International. Under Great Britain division, there are several brands like J2O, R Whites, Purdeys, Robinsons, Fruit Shoot, and exclusive contracts to distribute, make and market international brands on behalf of Pepsico, comprising Pepsi MAX, Pepsi, 7UP, and Gatorade. Around every minute, nearly 17,600 people buy Britvic drinks in Great Britain. It stays the number two carbonates provider, and the number one branded still in Great Britain. In Ireland segments, the company is well-known for its iconic Irish brands like MiWadi, TK, Club, Ballygowan, and Cidona. The company’s Ireland is also well-known for its CSR initiatives and compelling marketing. In France region, the company is the leading brand for syrup and fruit juice business, with offices based in Crolles. Its two leading syrups brands are Teisseire and Moulin de Valdonne. The company, through Pressade, is the number one brand in France for organic fruit juices. The group also leads the kid’s category, with Teisseire Fruit Shoot. In the Brazil division, the company has Dafruta, Maguary, Maguary Fruit Shoot, and Bela Ischia. In international brands, the company utilises the international potential of its kids, adult, and family brands to take advantage of prospects within several new markets through the franchise, licensing or distribution arrangements.

 
(Source: Annual Report, Company Website)

In Great Britain, the company has the largest volume share of 70% among all regions. The revenue from Great Britain increased to £956.4 million in FY19as compared with the corresponding period of the last year. France is the second-largest volume gainer by 10%. But the revenue for FY19 decreased to £244.9 millionin France against the previous year (2018: £269.2 million). Brazil and Ireland have the same volume share of 9% each. In Brazil and Ireland, the revenue was £124.8 million and £175.8 million in the financial year 2019.The international market has a volume share of 2%. The revenue from the international market stood at £54.1 million.

Financial Highlights (for the 52 weeks ended 29 September 2019, £,million)


(Source: Annual Report, Company Website)

In the financial year 2019, the company’s revenue increased by 1.4% (reported up 2.8%) to £1,545 million as compared with the corresponding period of the last year, driven by an increase in all the segments but decrease in the France region. The adjusted EBIT for the financial year 2019 increased by 4.4% (reported up 3.9%) to £214.1 millionagainst the last year (2018: £206 million), while adjusted margin surged by 40bps (reported up 20bps) to 13.9% as compared with the financial year 2018 of 13.7%. In the current period, the company incurred and have separately disclosed a net charge of £84.6 million of pre-tax adjusting items, an increase from the previous year (2018: £40.4 million). For the financial year 2019, the cash cost of adjusting items pre-tax stood at £31.3 million outflows. The adjusted tax charge in the period was £36.8 million, which compares to an effective tax rate of 19.9% in FY19 versus 21.6% in FY18. This mainly resulted from a prior period adjustment and change of geographical profit mix. The net tax charge was reported at £29.4 million, an increase from the previous year (2018: £28.7m), which compares to an effective tax rate of 26.7% in FY19 against the last year (2018: 19.7%). The increase was driven by an impairment in France which is not tax deductable. For the current period, the adjusted basic earnings per share (EPS) increased by 6.2% to 59.8 pence as compared with the corresponding period of the last year. Basic EPS was reported at 30.6 pence in FY19 as compared with 44.4 pence in FY18.

Adjusted free cash flow for the financial year 2019 stood at £116.0 million inflow against a £65.0 million inflow in FY18. Led by higher inventory levels, the company’s working capital generated a £20.2 million of outflow (2018: £15.5 million inflow). Capital expenditure for the financial year 2019 stood at £74.8 million against the previous year (2018: £143.5 million). This reflects the completed transformational business capability programme. On 29^th September 2019, the adjusted net debt decreased by £9.4 million to £566.1 millionas compared to the adjusted net debt of £575.5 million at 30 September 2018. This shows adjusted net debt leverage of 2.1x, a slight decrease from the previous year (2018: 2.2x).

The group’s Board proposed a final dividend per share of 21.7 pence, a surge of 6.9% against the last year dividend declared. On a year-on-year basis, the full-year dividend per share increased by 6.4% to 30.0 pence. For 2019, the final dividend per share will be paid on 5th February 2020 to investors on the record date on 6th December 2019. The ex-dividend date is 5 December 2019.

Key Performance Indicators

Revenue


Revenue growth measures the ability of an increase in price and/or surge in the volume sold. Revenue for the financial year surged by 2.8 per cent, including the impact of the Sugar Sweetened Drinks Tax (‘SSDT’) in Ireland and Soft Drinks Industry Levy (‘SDIL’) in the UK and the impact of foreign exchange movements. Organic revenue of the company rose by 1.4% in FY19, which excludes these impacts.

Adjusted EBIT margin



This measures the underlying profitability of the group, not including any one-off costs. On a year-on-year basis, the adjusted EBIT margin surged for FY19 by 20 bps, which includes the impact of the SSDT in Ireland and SDIL in the UK and the impact of foreign exchange movements. In FY19, the organic adjusted EBIT margin, excluding these impacts, surged by 40 bps.

Adjusted Earnings Per Share



Adjusted earnings per share are used by investors to compare the performance of a company against peers and also measures the profit per share of the company. Led by the growth of adjusted EBIT, the company’s adjusted EPS for the financial year 2019 surged by 6.2%.

Dividend per share



The company’s dividend per share measure enables investors to calculate the amount of profit that is returned to them by the group in cash. Dividend per share rose by 6.4%, reflecting the capital allocation policy of returning 50 per cent of adjusted EPS as dividends.

Financial Ratios

 

Over the years, the profitability margins of the group were considerably less than the industry median except for return on equity. The company’s ROE in FY2019 was significantly well above than the industry median. Additionally, the company is more leveraged than its peers. Inventory turnover ratio improved in the current financial year 2019 as compared to the previous year 2018 data.

Valuation Methodology
Method 1: Price/Earnings Multiple Approach (NTM)



To compare BVIC with its peers, Price/Earnings multiple has been used. The peers are Nichols PLC (NTM Price/Earnings was 19.98), C&C Group PLC (NTM Price/Earnings was 14.66), Stock Spirits Group PLC (NTM Price/Earnings was 12.94), and Coca-Cola European Partners PLC (NTM Price/Earnings was 17.68). The average of Price/Earnings (NTM) of the company’s peers was 16.32x (approx.).

Method 2: EV/Sales Multiple Approach (NTM)



To compare BVIC with its peers, EV/Sales multiple has been used. The peers are A.G.Barr PLC (NTM EV/Sales was 2.39), Coca Cola HBC PLC (NTM EV/Sales was 1.88), Carlsberg A/S (NTM EV/Sales was 2.65), Stock Spirits Group PLC (NTM EV/Sales was 1.68), C&C Group PLC (NTM EV/Sales was 1.01) and Coca-Cola European Partners PLC (NTM EV/Sales was 2.25). The mean of EV/Sales (NTM) of the company’s peers was 1.98x (approx.).

Share Price Performance


Daily Chart as of January 20th, 2020, before the market close (Source: Thomson Reuters)

Britvic PLC shares were trading at GBX 897.50 at the time of writing before the market close (at 11:14 AM GMT) on 20th January 2020 and were up by 2.63% versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,079.00/GBX 835.50. Stock’s average traded volume for 5 days was 964,989.40; 30 days – 826,815.50 and 90 days – 782,446.58. The traded (average) volume for five days was up by 16.71 per cent versus 30 days traded (average) volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.53. The outstanding market capitalisation was around £2.32 billion, with a dividend yield of 3.43 per cent. The shares of the company have delivered a positive return of 1.75 per cent in the last week and 2.57 per cent in last one year.

Key Risks

Failure to effectively evolve the portfolio to take benefit of growth categories and reinvent the key brands to meet client needs. Supplier failure, an adverse event or market shortage in the supply chain effects sourcing of raw materials or the cost of the products is substantially affected by commodity price movements. Climate change would also present a risk to the manufacture, ability to source and market the drinks. Also, the company reports that it is not immune from significant changes to global trade policy and uncertainties, including uncertainty with respect to the process surrounding the declared exit of the United Kingdom from the European Union. The company may also be impacted from the foreign exchange movements.

Growth Initiatives

The company has a clear strategy that is designed to realise the aspiration to become the most creative, trusted, and dynamic soft drinks group in the world: generate profitable growth in the key markets, realise international opportunities in kids, adult, and family categories, continue to step up changes in the business capability, and build trust and respect in the communities.

The company is growing at a steady growth, and the outlook of the company looks good.The company’s proper execution, innovation agenda and revenue management continue to deliver growth for the business of the company. Britvic is well placed to capitalise on future growth opportunities. The company has a portfolio of good brands which would enhance the growth of the company, and the company has the potential to deliver value to its investors.

Key Strength: It operates in a growing and resilient category and understands customer needs; a portfolio weighted towards low and no sugar; a portfolio of market-leading brands; growing international presence; robust market positions, and Long-term track record of growing investor value.

Conclusion

The company has delivered a decent financial performance in the fiscal year 2019. However, the company is facing certain principal risks and uncertainties, along with challenging market conditions. The company anticipate making further progress in the year 2020, through the combination of the strong portfolio of brands and geographical presence. The company has gained a reputation for being an agile, resilient business that consistently creates value for all its investors.

On a post-IFRS 15 basis, the company’s revenue CAGR stood at 3.7 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 prospects, and supported by valuation undertaken using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 874.50 (as on 17th January 2020) with lower double-digit upside potential based on 16.32x NTM Price/Earnings (approx.) on FY20E Earnings per share (approx.) and 1.98x NTM EV/Sales (approx.) on FY20E sales (approx.).
 
*The “Buy” recommendation is valid for the current price as covered in the report (as on 20-January-2020).
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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