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.