25th Jan 2024 15:14
(Alliance News) - Britvic is "over the worst of raw material inflation and the impact of the cost of living", according to analysts on Thursday.
This was after the drinks maker recorded a positive start to its financial year, with strong Christmas trading and rising first-quarter revenue, while expecting annual growth.
The Hemel Hempstead, England-based firm, behind brands such as Robinsons squash and R White's lemonade, said revenue in the first quarter that ended December 31 was GBP443.5 million, up 8.1% from a year earlier and marginally ahead of Peel Hunt's expectations.
By division, Great Britain revenue was up 6.9%, citing both retail and hospitality channels recording growth, while Brazil revenue surged 21%. This followed acquiring the Extra Power energy brands from GlobalBev, which was announced in July, and which Edison said "paved the way for strong growth in Brazil".
Other International revenue rose 6.0%, led by Ireland revenue rising 13%, while France revenue rose 1.1% with a strong price mix offsetting a volume decline.
In December, Britvic saw group revenue rise 12% and volume up 6.4% from a year earlier, benefiting from like-for-like growth and recent acquisitions. Edison said this underlined the "strong brand appeal" for consumers within Britvic's portfolio.
Britvic Chief Executive Officer Simon Litherland commented: "Our performance in the first quarter was strong and in line with our expectations, as we continue to offer consumers value as well as great taste, with our portfolio of family favourite soft drinks brands. We have exciting plans for the year ahead across our markets, with new innovations and engaging marketing activations, including Pepsi's first brand refresh in 14 years.
"We remain confident of achieving growth this year within the range of market expectations, as well as continuing our track record of delivering superior returns longer term."
Third Bridge said that Britvic was "over the worst of raw material inflation and the impact of the cost of living".
"They managed to protect margins by increasing prices and adjusting recipes without facing backlash from customers. Britvic should pay attention to low- and no-alcohol, as well as alcohol alternatives. This segment is poised to directly compete with the soft drink industry, particularly within the hospitality sector," said Third Bridge's Orwa Mohamad.
"The soft drink market's growth is still largely driven by carbonates and cola," Mohamad added. "Our experts say energy drinks present another compelling growth opportunity to explore.
"While Britvic's Rockstar brand is a strong contender, surpassing Red Bull and Monster remains a formidable challenge. Purdey could potentially carve out a niche in the evolving market landscape. Its natural product aligns with the growing trend of health awareness. Coke and private labels pose the greatest competitive threat to Britvic."
Looking ahead, Edison said market activations and innovations will continue to push the Britvic's 39 brands across its market.
"Pepsi's first brand refresh in 14 years paints an exciting opportunity for Britvic, as the company continues to invest in its portfolio. The brand investment and the two bolt-on acquisitions in high-growth categories made in [financial 2023] underpin management's confidence in meeting market expectations for [financial 2024]," said Edison analyst Milo Bussell.
Peel Hunt maintained a 'buy' rating for Britvic, setting a target price of 1,000 pence per share. It based this on Britvic shares trading on financial 2024 estimated price-to-earnings ratio of 14 times and an estimated enterprise value against earnings before interest, tax, depreciation and amortisation of 8.6 times.
Stifel, meanwhile, maintained a 'hold' rating for Britvic.
"We see Britvic as a core sector holding and remain 'hold' rated on the basis that equity risk/reward is reasonably balanced at this point in the cycle with [an estimated financial 2024 enterprise value against Ebitda of 9.4 times] broadly in line with the company's LT historical average," said Stifel.
Shares in Britvic were up 2.5% to 876.50 pence each in London on Thursday afternoon.
Britvic will announce its interim results on May 15.
By Greg Rosenvinge, Alliance News senior reporter
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