Britvic Plc (LON:BVIC) shares offer an attractive entry point after losing their fizz in the year to date, said Morgan Stanley as it upgraded the stock.
Shares in the soft drink and juice maker have fallen more than 10% since the start of the year amid concerns about the impact of the UK government’s sugar tax, which will come into effect in April.
READ: Britvic goes flat as uncertainty over sugar tax offsets slight first-quarter revenue growth
The owner of 7UP, J20 and Robinsons has already been hit by rising input costs on the back of a weaker pound following the Brexit vote.
“Britvic is navigating the challenge of rising input costs through cost savings and selective price increases,” Morgan Stanley said.
“Uncertainty remains regarding the sugar tax, but we are cautiously optimistic about Britvic's prospects.”
Morgan Stanley raised its rating to ‘overweight’ from ‘equal-weight’ and lifted its target price to 870p from 680p.
It expects its margins to improve by 170 basis points to 14.6% between fiscal years 2017 and 2020, driven by cost savings from its so-called business capability programme.
Free cash flow will more than quadruple over the same period on the back of lower capital expenditure and working capital efficiencies, Morgan Stanley estimates.
Shares in Britvic rose 5.9% to 722p in morning trade.