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Research: Consumer
Britvic reported robust FY23 results despite the weaker consumer environment, reflecting the resilience of its brand portfolio. Price/mix offset limited volume declines resulting in revenue growth of 6.6%, despite unfavourable summer weather and tougher comparators. Inflationary pressures were mitigated through pricing actions and cost discipline, as adjusted EBIT grew 6% at a margin of 12.5%. Investment in its existing brand portfolio and the recent addition of two bolt-on acquisitions in high growth categories underpins management’s confidence heading into FY24.
Britvic |
Brand portfolio proving resilient
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Consumer |
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27 November 2023 |
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Britvic reported robust FY23 results despite the weaker consumer environment, reflecting the resilience of its brand portfolio. Price/mix offset limited volume declines resulting in revenue growth of 6.6%, despite unfavourable summer weather and tougher comparators. Inflationary pressures were mitigated through pricing actions and cost discipline, as adjusted EBIT grew 6% at a margin of 12.5%. Investment in its existing brand portfolio and the recent addition of two bolt-on acquisitions in high growth categories underpins management’s confidence heading into FY24.
FY23 results
Britvic reported FY23 robust revenue growth of 6.6% y-o-y on a constant currency basis and 8.1% on a reported basis to £1.7bn (FY22: £1.6bn). Top-line growth was driven by price/mix growth as group volumes declined 2.2%, resulting from tougher Q422 comparators as well as unfavourable weather in July and August 2023. Adjusted EBIT grew 5.9% to £218m (FY22: £206m), slightly ahead of market expectations (Refinitiv: £215m). Adjusted EPS rose 6.5% to 61p (FY22: 57.3p), reflecting EBIT growth and fewer number of shares due to the buyback programme. Strong free cash flow of £130m enabled leverage to be maintained y-o-y at 1.9x adjusted net debt/EBITDA, well within the 1.5–2.5x target range. The FY23 dividend was 30.8p (FY22: 29p), consistent with management’s 50% payout ratio.
Execution on strategy
Britvic continues to deliver against its strategy of sustainable growth. The strength of its brand portfolio enabled Britvic to take price relatively early with volumes seeing a limited decline. The company continued to invest in its supply-chain capacity, and the acquisitions of Jimmy’s Iced Coffee in Great Britain and Extra Power in Brazil provide further opportunities in fast-growth new categories. The focus on sustainability through its ‘Healthier People, Healthier Planet’ strategy provides consumers with healthier low- and no-sugar products while minimising Britvic’s environmental impact across its supply chain.
Valuation
Britvic trades on a consensus FY24e P/E multiple of 13.5x, a c 12% discount to the UK beverages sector (excluding Fevertree) and a c 13% discount to AG Barr, which reflects that some of its brands are part-owned by third parties and its more leveraged balance sheet. We believe these discounts should narrow if the balance sheet deleverages. The sector is exposed to a weaker consumer environment and above-average inflationary pressures, although these are starting to ease.
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Consensus estimates
Source: Refinitiv (Priced at 24 November 2023) |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Healthcare
AFT Pharmaceuticals reported solid H124 top-line growth, driven by strong momentum in the Asian and international markets. H124 revenues of NZ$83.6m grew 27.2% from H123, bolstered by 171.4% and 47.8% y o y growth in international and Asian markets. Although margins came in softer than expected (operating margin of 3.9% vs 5.3% in H123) with increased upfront launch, marketing and R&D spending, particularly in the domestic ANZ markets, management expects margins to recover in H2 as the business scales in these newly launched markets. Given the H1 run rate and seasonality (H2-weighted business model), we raise our top-line estimates for FY24 and FY25 but temper near-term operating profit expectations, in line with management’s FY24 operating profit guidance of NZ$22–24m. Longer term, we anticipate a lift from the recent FDA approval of Maxigesic IV. As a result of these adjustments, our valuation resets to NZ$723m or NZ$6.90/share, up from NZ$644m or NZ$6.14/share previously.