Britvic — Strong growth despite headwinds

Britvic (LSE: BVIC)

Currency in GBP

Last close As at 03/02/2023

GBP7.79

5.50 (0.71%)

Market capitalisation

GBP2,019m

Research: Consumer

Britvic — Strong growth despite headwinds

Britvic reported strong double-digit revenue growth across all business units in FY22, reflecting brand resilience despite significant headwinds. Trading benefited from a full year with no COVID-19-related restrictions and hot weather during the summer. Performance was boosted by balanced growth in volume and price, as management mitigated the significant cost inflation in the year through price rises and efficiency initiatives. As such, adjusted EBIT was up 17% while adjusted EPS grew 29.3%. The dividend per share increased 19.8% to 29p. Despite the more challenging macroeconomic environment, management notes no slowdown in consumer demand, with current trading in line with expectations. Although current headwinds on costs and consumer spend are expected to persist into FY23, management believes it is well positioned to navigate these challenges successfully.

Written by

Milo Bussell

Associate Analyst, Consumer and Media

Consumer

Britvic

Strong growth despite headwinds

Consumer

QuickView

30 November 2022

Price

814.5p

Market cap

£2,126m

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Share details

Code

BVIC

Listing

LSE

Shares in issue

261m

Business description

Britvic is a soft-drink beverage company with headquarters in the UK. The company participates in the marketing and manufacturing of popular brands including PepsiCo in Great Britain and Ireland. Britvic also has operations in France, Brazil and selected other EU markets.

Bull

The soft drinks segment is relatively resilient.

The business continues to make progress against its strategic objectives, including sustainability-linked targets.

Market leadership status: number one in branded still soft drinks and number two in branded carbonated soft drinks in Great Britain, number one in ready-to-drink (RTD) juice in Brazil.

Bear

The outlook for consumer demand is weakening given the inflationary environment.

Some brands are part-owned by third parties.

Due to uncertainty around wage and energy costs, the cost base could remain elevated into FY24.

Analysts

Sara Welford

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Britvic is a research client of Edison Investment Research Limited

Britvic reported strong double-digit revenue growth across all business units in FY22, reflecting brand resilience despite significant headwinds. Trading benefited from a full year with no COVID-19-related restrictions and hot weather during the summer. Performance was boosted by balanced growth in volume and price, as management mitigated the significant cost inflation in the year through price rises and efficiency initiatives. As such, adjusted EBIT was up 17% while adjusted EPS grew 29.3%. The dividend per share increased 19.8% to 29p. Despite the more challenging macroeconomic environment, management notes no slowdown in consumer demand, with current trading in line with expectations. Although current headwinds on costs and consumer spend are expected to persist into FY23, management believes it is well positioned to navigate these challenges successfully.

FY22 results

Revenue grew 15.2% on a reported basis and 15.5% on a like-for-like and constant currency basis to £1.62bn (FY21: £1.41bn), ahead of consensus expectations (Refinitiv: £1.59bn). Adjusted EBIT grew 17% while reported EBIT was up 26.2%, at an adjusted margin of 12.7% (reported 11.9%). Adjusted EPS was up 29.3% to 57.3p. Strong free cash flow of £129m enabled the lowering of adjusted net debt to £475m (FY21: £489m). Adjusted net debt to EBITDA fell to 1.9x (FY21: 2.1x).

Deliver on strategy as cost headwinds are managed

Britvic continues to deliver against its strategic objective of sustainable growth. It is investing in its brand portfolio and supply chain, while making strong progress on sustainability targets and developing growth opportunities in new areas. Although input cost pressures are expected to remain elevated in FY23, management has greater cost visibility given the hedging strategy, which has secured prices, although at a higher level than FY22. Britvic will also use revenue management and efficiency savings to maximise pricing.

Valuation

Britvic trades at a consensus FY23e P/E of 14.3x, a c 17% discount to the UK beverages sector (excluding FeverTree) and a c 11% discount to AG Barr, reflecting its more geared balance sheet and the fact that 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, inflationary cost pressures and weak consumer spend remain the biggest risks for the whole sector.

Consensus estimates

Year
end

Revenue
(£m)

Adjusted EBIT (£m)

Adjusted EPS (p)

DPS
(p)

P/E
(x)

Yield
(%)

09/21

1,405.1

176.5

44.3

24.2

18.4

3.0

09/22

1,618.3

206.0

57.3

29.0

14.2

3.6

09/23e

1,721.8

212.5

56.8

29.2

14.3

3.6

09/24e

1,782.9

227.7

61.3

31.3

13.3

3.8

Source: Refinitiv (30 November 2022)

General disclaimer and copyright

This report has been commissioned by Britvic and prepared and issued by Edison, in consideration of a fee payable by Britvic. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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United States of America

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This report has been commissioned by Britvic and prepared and issued by Edison, in consideration of a fee payable by Britvic. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

Exclusion of liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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