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Research: Consumer
In FY18 the UK sugar levy (SDIL) and CO2 shortage took the shine off a potentially landmark summer. Nevertheless, Britvic (BVIC) delivered good EPS growth of 6.4% on revenue up 5.1%. A five-year track record of 10% EPS CAGR, with debt within target, indicates earnings quality. Looking ahead, as the business capability programme ends, bringing planned returns, further growth and lower leverage may narrow the wide discount to peers.
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Britvic |
Managing events for sustained returns
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ADR research |
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7 December 2018 |
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In FY18 the UK sugar levy (SDIL) and CO2 shortage took the shine off a potentially landmark summer. Nevertheless, Britvic (BVIC) delivered good EPS growth of 6.4% on revenue up 5.1%. A five-year track record of 10% EPS CAGR, with debt within target, indicates earnings quality. Looking ahead, as the business capability programme ends, bringing planned returns, further growth and lower leverage may narrow the wide discount to peers.
Strong brands grow absolute value and share
GB stills revenue grew 4.2% y-o-y: Robinson’s is back in growth. Squash is the number one gainer on post SDIL switching, and Fruit Creations the number one soft drink launch in the last two years (Nielsen). J2O resumed growth on higher marketing, in-store action and success with the Spritz variant. Low/no sugar brands (7UP, Tango, R Whites, Purdey’s, Lipton) grew strongly. Pepsi, led by MAX, grew value share +120bp despite CO2 distortions. Only Fruit Shoot declined on competition and fewer price promotions. Meanwhile, brand innovation hit a record 7.1% of revenue.
Regions: Domestic weighting to growth
GB carbonates grew revenue (ex-SDIL) 10% and contribution 7.4% to £251.7m. Stills revenue grew 4.2% with Robinsons and J2O offsetting Fruit Shoot’s decline, and contribution 4.1% up at £116.6m. France’s contribution slipped 0.6% at £81.4m, but Ireland’s grew 15.1% including Ballygowan, MiWadi, Counterpoint and FY17’s East Coast acquisition. International grew contribution 48% to £10.2m, and more significantly, Brazil by 6.9% to £24.8m. Adjusted net debt was £575.5m, up £72.6m on deferred consideration, but leverage is 2.2x, within the target 2.0–2.5x.
Strategy: Good shareholder returns
Strategy has four pillars, to: generate profitable growth in core markets; realise global opportunities; step-change business capability; and build trust and respect. This has generated good returns with a five-year EPS CAGR of 9.8% and DPS CAGR of 8.9%.
Valuation: FY19e growth may compress discount
BVIC trades at FY19e P/E of 13.6x, a 36% discount to the All-Share Beverages 12-month index and a 40% discount to AG Barr (calendarised), reflecting its geared balance sheet, partial ownership structure and steady earnings growth. However, with sustained earnings and income delivery, those discounts may narrow.
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Consensus estimates
Source: Britvic, I/B/E/S. Note: *Adjusted. |
Britvic is a research client of Edison Investment Research Limited.
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Disclaimer
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Disclaimer
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Research: Investment Companies
Deutsche Beteiligungs (DBAG) reported FY18 net income of €33.6m, at the top of management’s guidance range, with a 7.8% dividend-adjusted NAV return for the financial year. While net income was lower than in FY17, a €1.45 per share FY18 dividend has been proposed, representing a 3.6% increase on the prior year. FY18 saw DBAG reinvesting and growing its investment portfolio, agreeing seven new investments and one disposal, following an exceptional FY17 during which six new investments and seven divestments were agreed. DBAG has broadened its expertise outside of its traditional core sectors and, at end-FY18, 31% of the portfolio was represented by consumer goods, information technology, media & telecoms, real estate and healthcare companies. Relatively immature investments (younger than two years) now account for over half of DBAG’s invested capital, and this contributes to a conservative outlook for FY19 while providing more promising medium-term prospects.