The drinks industry has been a source of great profits for investors over the years. Somewhat inevitably, however, there are periods when things fall flat for some of the major players.
Tonic water specialist Fevertree and Vimto-maker Nichols are recent examples of seemingly temporary setbacks have caused sentiment to sour.
Today, it was the turn of Hemel Hempstead-based Britvic (LSE: BVIC) to update the market. Based on early trading, it would seem investors were very relieved by what the company had to say.
Revenue over the first quarter of the financial year fizzed 2.6% higher to just shy of £370m. That’s far from explosive but it’s good enough, at least in my view, for such an established business.
As a result of this performance, the £2.3bn market cap firm stated that it was confident of meeting analyst expectations for the full year while cautioning that conditions would “remain challenging“.
The only other news worth mentioning related to the sale of some of its troublesome French assets to independent bottling firm Refresco. Britvic now believes the deal will be completed at some point this year, assuming regulatory approval is received.
Considering the relatively defensive nature of its business, I continue to like this company’s valuation. A forecast price-to-earnings (P/E) ratio of 14 (at least before markets opened this morning) doesn’t seem too steep for a firm that boasts a portfolio of brands such as Robinsons, Tango, and J20 and also holds the licence to produce and sell PepsiCo products in the UK and Ireland.
Britvic’s income credentials shouldn’t be overlooked either. A likely total dividend of 33.5p per share in the 2020 fiscal year gives a yield of 3.7%. That’s higher than the 2.8% or so you’d receive from buying an exchange-traded fund that tracks the FTSE 250 index of which it is a member.
Taking all this into account, I continue to think that the mid-cap warrants attention from investors looking for a mix of steady growth and decent income from their stocks.
Buy the dip?
The reaction to today’s update from Britvic (+4%) is in complete contrast to yesterday’s response to the latest interim results from FTSE 100 spirits giant Diageo (LSE: DGE).
Due to “increased levels of volatility” in parts of the world including India and Latin America, the owner of brands such as Johnnie Walker whiskey and Smirnoff vodka said that organic net sales growth for the year would now be at the lower end of its 4-6% mid-term target.
Compounding investors’ fears, CEO Ivan Menezes also mentioned “ongoing uncertainty in the global trade environment”, and added that the company “would not be immune from further policy changes”. Shares duly fell.
Of course, one should avoid judging a specific stock based on a short period of trading or macroeconomic issues. Investing is a long game. Diageo remains a global leader in what it does, is hugely cash-generative, and delivers reliably good returns for shareholders on the money it invests.
It’s also a consistent dividend-hiker, further evidenced by yesterday’s 5% increase to the interim payout (to 27.41p per share). The consensus from analysts is that the company will return 72.9p per share to its owners in this financial year, giving a yield of 2.4%.
With shares almost 20% lower in value now than they were in September last year, I’m very tempted to get involved.
Paul Summers 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 Diageo. 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.