FTSE 250 drinks maker Britvic Plc (LON:BVIC) has been upgraded to ‘Buy’ from ‘Hold’ by German bank Berenberg as its “well positioned” portfolio seemed set to benefit from the recent UK sugar tax.
Analysts at the bank said the company’s GB carbonates division “maintained its momentum during H1 2018, with revenue increasing 9.1%. The company highlighted that Pepsi was the main growth driver, gaining 160bp market share during the period, while several other brands also increased revenue.”
READ: Britvic shares rise as revenue increases but restructuring cost dents profits
They added: “We continue to believe that Britvic’s portfolio is well positioned for the recently introduced soft drinks tax and note that Pepsi in particular could benefit if the levy leads to an accelerating shift to low-sugar drinks as its no added sugar variants command significantly more share than its full-sugar product.”
Berenberg also commented that despite a decline in revenues for Britvic’s stills division in the first half of the year, a stronger performance of its Robinsons ranges could help bring the division toward stabilisation in the second half.
On May 23, Britvic reported that its half-year revenues had risen for the first half of the year, although £21.6mln in planned costs for the company’s business capability programme caused pre-tax profits to drop by over 10%.
However, Berenberg’s analysts were optimistic about the outcome for the group and the benefits of its restructuring: “Although some divisions remain relatively subdued, we feel the overall outlook for the company is becoming more positive. Therefore, with the benefits of the Business Capability Programme (BCP) starting to come through and free cash flow (FCF) set to increase substantially from next year…we upgrade the stock to Buy”.
They added: “Having been affected by acquisitions of lower-margin businesses and FX headwinds over the past two years, Britvic began generating EBIT margin expansion again in H1 2018… with the benefits of the BCP coming through, we expect the underlying margin momentum to continue. Furthermore, a significant proportion of savings from the programme will be delivered once the Norwich manufacturing site closes in late 2019.”
Berenberg also upped its target price for the group to 900p from 725p, while in late morning trading Thursday the shares were up 0.44% at 807.5p.