As the summer holidays near their end, I realise the next four months will disappear in a flash and before I know it, 2020 will have arrived. So what shares do I think will perform well in the coming year? Here are two soft drinks suppliers that interest me.
Famous for its Vimto brand, Nichols (LSE:NICL) has been performing well of late, but with so much economic uncertainty in the UK, I’m not sure its current share price can hold for 2020.
This Aim-listed stock published a solid set of results on 17 July for the half-year ended 30 June. It reported a 10.2% increase in group revenue and a 2% rise in operating profit, although its operating profit margin was down 1.5%. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased to £15.3m from £14m during the same period in 2018.
An upbeat non-exec chairman John Nichols said the firm “delivered another good trading performance, with growth across both the UK and international markets. As a result, we have increased the interim dividend by 9.7%.”
Is it a Buy to me? Well, the PEG ratio of 5.8 shows this stock could be overvalued and its current share price is above its future cash flow value. Conflict in Yemen has previously affected shipments to Saudi Arabia but this doesn’t appear to be an ongoing problem, yet international trade worries could well be a concern. However, Vimto is considered Brexit-proof as its key ingredients are sourced in Britain and all Nichols’ products are produced in the UK. I’m concerned that this has already been factored into the share price though, and along with its high PEG ratio, its price-to-earnings ratio is high at 25.
Yet the company remains interesting. Vimto has been around for 110 years and is popular in the Middle East during Ramadan. Nowadays, the brand includes sugar-free versions, cordial, chewy sweets, merchandise, novelty sweets, frozen lollies and jellies. I am sure this company will survive, but if growth is stagnant or international tensions cause problems, it may suffer a share price drop in the meantime.
Onwards and upwards
Another soft drinks producer worth watching is Britvic (LSE:BVIC). Established in the 1930s, its soft drinks include Robinsons, J2O and R Whites. It has survived the sugar-tax relatively unscathed as its range of already-sugar-free drinks has given it a competitive edge. This is unlike competitor AG Barr, the Irn-Bru-maker, which saw its share price plummet after announcing a profit warning.
Britvic has a market cap of £2.3bn and a dividend yield of 3.4%. Its earnings per share are 44.5p and it’s a FTSE 250 stock. The company is confident it will meet analysts’ forecasts for the full year, by focusing tightly on cost control, which is reassuring in challenging times.
Britvic is a steady business with dependable sales, a good track record of growth and reliable income streams. These include the Britvic branded drinks it exports internationally and licenses to franchise partners, along with PepsiCo products it’s licensed to produce and sell in the UK and Ireland.
Its profit margin is 7.7%, operating margin is 10% and it has a price-to-earnings ratio of 19, which is quite high but not so bad when compared to Nichols.
If you already own Nichols, then I think you should Hold. Britvic on the other hand I deem a Buy.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended Nichols. 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.