Shares in soft drinks giants Britvic PLC (LON:BVIC) and Coca Cola HBC AG (LON:CCH) fizzed higher on Thursday on the back of two bullish broker notes.
Deutsche Bank upgraded both companies from a ‘hold’ recommendation to ‘buy’, albeit for slightly different reasons.
Good buying opportunity for CCH
Analysts there think the recent pull back in CCH shares “represents a good buying opportunity”, while they also believes margins are set to improve over the next few years or so.
“We are increasingly confident CCH will deliver its 2020 11% margin target, which underpins 10-11% EPS growth per annum for the next 3 years, following +27% in 2017,” wrote Andrea Pistacchi.
“After 2020, we believe margins should continue to expand (c30bps p.a.) through top line leverage, driving c8% EPS growth pa, which is at least as good as most staples.”
CCH has long been rumoured to be interested in snapping up The Coca-Cola Company’s (NYSE:KO) 54.5% stake in Coca-Cola Beverages Africa, which it plans to sell this year.
£850mln pay-out on the cards?
Pistacchi reckons there is a “good chance” CCH will indeed be the buyer and that the deal should be a catalyst for shares.
“We believe CCH is still the frontrunner for the CCBA stake acquisition, which could result in significant EPS accretion on our estimates and enhancement to CCH’s long-term growth profile, which could justify further re-rating of the stock in our opinion.”
It’s not all bad news if that doesn’t go through though, as investors should expect “a significant cash return” in the form of a special dividend, potentially pocketing as much as £850mln.
Alongside his ‘buy’ rating, the analyst also nudged his price target up to £28.50.
Analyst praises Britvic management
Switching to Britvic, the same analyst wrote that the Robinsons fruit squash maker “is a very different company” from what it was just a few years ago.
He praised the “excellent management team” – headed up by chief executive Simon Litherland – which is working to transform the core UK business whilst growing Britvic’s presence abroad at the same time.
“Litherland (CEO since 2013, ex-Diageo) has transformed Britvic from a rather inward-looking company into one that is more ambitious/bold, agile, innovative and international.”
Pistacchi notes that since Litherland’s arrival in 2013, Britvic has grown earnings per share by 19%, 10%, 7% and 7%, despite the prolonged period of price deflation and the weak pound.
“In our opinion, 6-7% EPS growth, or better, is sustainable going forward, with a UK business that is getting stronger, premiumisation opportunities in the UK, growth opportunities in its international markets, significant cost savings over the next 3 years and P&L benefits from improving cash generation,” he said.
“On the front foot” with innovation
Like many of its peers, Britvic has had to adapt its offering to cater for a more health conscious consumer – something that Pistacchi reckons the company has been “on the front foot”.
“Britvic has been on the front foot. With a major step up in innovation it has enhanced the health credentials of Fruit Shoot and Robinsons, it is leveraging Robinsons’ into adjacent “growthier” segments and new consumption occasions, and focusing on premiumisation, a huge opportunity in UK soft drinks.”
The analyst also has Britvic as a ‘buy’ with a £9.50 target price.
Early on Thursday afternoon, Britvic shares were up 2.5% to 820p, while CCH’s stock gained 1.9% to £24.04.