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Research: Consumer
FY20 started well, with value share gains in GB, Ireland and Brazil. As expected, lockdown has affected out-of-home and on-the-go consumption in particular. Conversely, sales of at-home consumption packs have increased significantly, thus leading to an adverse mix effect. GB and Ireland have been the most affected markets for Britvic, as they have a greater exposure to the out-of-home channel. The company is maintaining its guidance of a likely monthly impact from the COVID-19 pandemic of £12–18m adjusted EBIT, though its scenarios seem very conservative.
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Britvic |
H120 results
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Consumer |
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2 June 2020 |
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Britvic is a research client of Edison Investment Research Limited |
FY20 started well, with value share gains in GB, Ireland and Brazil. As expected, lockdown has affected out-of-home and on-the-go consumption in particular. Conversely, sales of at-home consumption packs have increased significantly, thus leading to an adverse mix effect. GB and Ireland have been the most affected markets for Britvic, as they have a greater exposure to the out-of-home channel. The company is maintaining its guidance of a likely monthly impact from the COVID-19 pandemic of £12–18m adjusted EBIT, though its scenarios seem very conservative.
H120 results
There was a planned change in the reporting period, which affects reported growth rates, as H120 is 26 weeks vs 28 weeks in H119. Reported revenue was down 9.1%, but up 1.4% on a like-for-like and constant-currency basis. Adjusted EBIT was up 9.4% on this comparable basis, but down 9.6% on a reported basis, with adjusted EBIT margin up 80bps on a comparable basis. The dividend was deferred to later in the year for prudence, when the impact of COVID-19 will be clearer.
COVID-19 update
Britvic had issued a statement on 23 March with a COVID-19 update, in which it shared a sensitivity analysis and attempted to quantify the monthly impact on the business of a full lockdown in its markets. It suggested this would be £12–18m on adjusted EBIT, depending on the scenario. The company is now sharing further details: the scenarios included an assumption that a level of restriction on movement would continue until March 2021, and that only a small proportion of out-of-home outlets reopen during this time. In addition, it assumed the busiest trading period in FY20 was affected. As lockdowns are eased across Britvic’s key markets and the level of trading restrictions reduces, we expect the monthly EBIT impact should also be lower. Of course, management has already taken the necessary mitigating actions to protect profit and cash flow, such as reducing A&P, stopping all non-essential and non-committed capex, and tightly managing working capital.
Valuation: Discount should narrow
Britvic trades at a consensus FY20e P/E of 15.9x, a c 40% discount to the UK beverages sector and a c 30% discount to AG Barr (calendarised), reflecting its geared balance sheet and the fact some of its brands are part-owned by third parties. We believe those discounts should narrow over time with reducing balance sheet leverage, although in the shorter term COVID-19 uncertainty remains the biggest risk for the whole sector.
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Consensus estimates
Source: Refinitiv, company data |
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Research: Real Estate
Picton Property Income has completed a new £50m revolving credit facility (RCF) to replace two existing facilities that were due to expire in June 2021. Although initially undrawn, the facility maintains operational and financial flexibility, for a longer duration, at a slightly reduced cost. We expect FY20 results to be released later in June, although no date has been confirmed, including an update on the impact of COVID-19. The company entered this period of acute economic and sector uncertainty with a strong and liquid balance sheet and material internal asset management opportunities to support income and capital values.