Britvic (LSE: BVIC) has posted a rather disappointing performance in the first half of 2014, with shares in the drinks company gaining just 2%. Certainly, this betters the return of the FTSE 100 (which is down around 1%), but is behind sector peers SABMiller (LSE: SAB) and AG Barr (LSE: BAG), which are up 5% and 10% respectively over the same time period. However, looking ahead, Britvic has more appeal than its two sector peers.
A More Attractive Valuation
The beverages sector remains in high demand among investors, so it is unlikely to find a drinks company that offers better value at present than the FTSE 100. Indeed, SABMiller currently trades on a price to earnings (P/E) ratio of 21.1, while AG Barr’s P/E of 22 is even higher. Neither of these P/Es looks attractive when compared to the FTSE 100’s P/E of 13.9, however Britvic’s current P/E of 17.2 does offer good value when compared to its two peers. Clearly, if two sector peers can trade at P/Es of over 20, then investors could be willing to bid up Britvic’s shares so that their valuation is in line with rivals.
Strong Growth Prospects
A key reason why the beverage sector is so highly rated is due to its strong growth prospects. For example, SABMiller is forecast to deliver earnings per share (EPS) growth of 10% in each of the next two years. However, Britvic offers more — a highly impressive 15% in both 2014 and 2015. This is around double the FTSE 100 average and highlights the appeal of Britvic as a growth stock. Furthermore, it is a far higher rate of growth than is currently on offer at AG Barr, where EPS is set to rise by a rather pedestrian (in comparison to sector peers) 5% and 9% in each of the next two years.
So, while Britvic continues to trade on a higher valuation than the FTSE 100, it appears to offer impressive relative value. Furthermore, it is forecast to grow earnings at a faster pace than both of its rivals which, in the beverages sector, is a key consideration since none of the three stocks yield more than 2.9%. As such, Britvic could prove to be the most appealing of the three companies and the lagging share price performance in the first half of 2014 could be reversed over the medium term.
Peter does not own any of the shares mentioned. The Motley Fool has recommended shares in Britvic.