Britvic's shares have nearly doubled in the last 5 years and still look decent value.
In moribund trading conditions, shares in Britvic (LSE: BVIC) sparkled on Wednesday. It wasn't difficult to see why.
After delivering solid growth in sales revenues and profits during 2009 -- not the easiest of years to turn a shilling -- a trading statement released prior to the company's Annual General Meeting painted a picture of an equally good start to 2010. During the first twelve weeks of the trading year, revenues were up 11% over last year, boding well for pricing power and profitability.
Not just mixers
Formed in 1986 when former brewers Bass, Whitbread (LSE: WTB) and Allied Breweries merged their respective soft drinks businesses, the company has long since outgrown its initial mission of acting as the soft drinks supplier to the then pub estates of these three shareholders.
It's now the number two branded soft drinks business in the UK, with the licensed on‑premise channel now accounting for just 20% of revenues.
Britvic's brands include Tango, Britvic, Robinsons, Red Devil, Pennine Spring and J2O. In 2004, the company's original exclusive 20‑year bottling arrangement Pepsi and 7UP in Great Britain, first negotiated in 1987, was extended for a further 15 years until 2023. In 2005, Britvic floated on the Stock Exchange, and has a market cap of £878 million.
Margins and debt
Full year sales of £979 million earned a post-tax profit of £46 million. I've seen better margins -- that works out at just 4.7% -- but this is the food and drink industry we're talking about here, where a lower margin is the price paid for a business with strong defensive characteristics.
That said, it's not too difficult to spot one way of boosting profits: cut debt levels, which currently cost the business £23.6 million in net interest payments -- payments that could otherwise flow to the bottom line, and be paid out in dividends or used to fund organic growth.
Debt has grown by 60% in just four years, and now stands at £451 million, chiefly as a result of the acquisition of the Irish soft drinks business of cider manufacturer C&C Group, owners of the Magners brand. As a result, at 92%, gearing is high -- and could get higher, if the company continues, as expected, to make further acquisitions.
Not expensive
Since first floating in 2005, Britvic hasn't disappointed. Wednesday's closing price of 432 pence saw the shares close up 7% on the day -- a day when the FTSE closed over 1% down. At that price, they're almost twice the 2005 flotation price.
What's more, October 2008's low of 161 pence, as markets were panicking, just shows how much shares can be mis-priced, in a year that was going to turn out to be one of the business's best ever.
A price of 432 pence puts the shares on a fairly undemanding forecast P/E of around 13, offering a forecast yield of 3.9% -- neither figure rating the company as expensive.
Admittedly, Britvic hasn't got the long stock market history that some investors look for, but management haven't put a foot wrong so far. Barring any unexpected corporate banana skins, Britvic seems a buy.
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