Are Coca-Cola shares the prime beverage bets on the London Stock Exchange?

I could (sort of) buy Coca-Cola shares on the London Stock Exchange, but there might be better British beverage stock options.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve been wondering whether Coca-Cola shares are the best beverage stocks on the London Stock Exchange.

No, I haven’t lost my mind. It’s possible to buy shares in Coca-Cola that are directly listed on the LSE. Well, sort of. Coca-Cola HBC AG and Coca-Cola Europacific Partners are UK listed. They’re licensed to bottle and distribute Coca-Cola products on behalf of the US-listed Coca-Cola Company in Europe and Africa to Asia and the Pacific.

The choice dilemma

The Coca-Cola bottler companies aren’t the only beverage stocks listed on the LSE. The likes of Britvic, AG Barr, Nichols, and Fevertree are also there for consideration. So, which of these four drinks makers and the two bottlers do I like the most?

I’m biased towards quality over value, momentum, growth, or any other factor. I measure quality by looking at snapshot ratios for profitability, efficiency, leverage and liquidity.

Britvic had the best return on equity over the last 12 months. Fevertree and A G Barr have the best operating margins. Britvic and Nichols are the best at turning inventory into cash and getting the most from their assets, respectively. Fevertree and Nichols look the least leveraged and better prepared to handle their short-term debts. The Coca-Cola bottlers don’t stand out as being either good or bad across those measures. But they do trade at price-to-earnings (P/E) ratios — 13.8 for Coca-Cola HBC and 14.6 for Coca-Cola Europacific Partners — that are below average for the beverages industry.

Unfortunately, Fevertree doesn’t look cheap at all. It trades at a forward P/E ratio of 52. Nichols is better placed with its P/E of 20. But that’s still above average for beverage stocks. AG Barr is about average on 17 while Britvic has a P/E ratio of 14. So, AG Barr and Britvic look promising, along with the solidly performing Coca-Cola bottlers.

UK beverage stocks

The Coca-Cola Company has tight control of where and how much the Coca-Cola bottlers produce, and how profitable they are. Since they’re not in full control of their destiny, I don’t think I can consider them as my pick of the beverage stock bunch. So, I’m left with Britvic and AG Barr.

Britvic has its own brands. But it also bottles and sells drinks in the UK on behalf of others like Pepsi. AG Barr does some bottling but not as much as Britvic. The sheer volume of Pepsi that’s sold in the UK probably explains why Britvic’s average operating margin of 10.4% is lower than AG Barr’s 15.5%. Britvic appears to be more like the Coca-Cola bottlers than I’d like.

While Britvic has an edge in size and overseas markets over AG Barr (which should reduce its risk), I prefer the latter. I like AG Barr’s focus on smaller markets where it might have an edge. It owns Irn-Bru, the top-selling soft drink in Scotland. And it recently bought an oat milk business (MOMA) with a strong position in a growing market.

All things considered, if I had to pick my prime beverage stock bet on the LSE, that’s the one I’d go for.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended A.g. Barr P.l.c., Britvic Plc, Fevertree Drinks Plc, Monster Beverage, and Nichols Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£20,000 in savings? Here’s how I’d aim for £14,710 a year in passive income

With spare savings, this Fool would start generating passive income for a more comfortable retirement. Here he details how he'd…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d try to turn that into £581 a month of passive income

Relatively small investments in high-yielding stocks can grow through the power of dividend compounding into significant passive income.

Read more »

Photo of a man going through financial problems
Investing Articles

These are the FTSE’s biggest dogs over the last year!

The FTSE 100 has fallen far behind other major market indices over the past 12 months. However, these three sliding…

Read more »

Investing Articles

My top 3 stock market lessons from the Nvidia volcano eruption

Can we learn anything from the explosive rise in Nvidia's share price? Here are three Foolish reflections from this stock…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Is boohoo the best near-penny stock to buy today?

This Fool asks why the boohoo share price has collapsed and whether now might be a good time to invest…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

This 7.7% yielding FTSE 250 stock is up 24% in a year! Have I missed the boat?

When a stock surges, sometimes it can be too late to buy shares and capitalise. Is that the case with…

Read more »

Investing Articles

£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could…

Read more »