In FY19 Britvic delivered a strong performance showing good momentum in its core business. The GB business had both Britvic and PepsiCo brands showing revenue growth, Brazil continues to grow and problems in France are being addressed with a proposed exit from private-label juice. The Business Capability Programme (BCP) is complete, and cost savings delivered ahead of schedule. The outlook is somewhat cautious as the consumer environment remains tough, and changes in France will take a while to fully implement. Notwithstanding this, management expects to make further progress in FY20.
Total GB revenue was up 3.6%, driven by growth in Carbonates. On the Stills side, volumes declined due to tough H218 comparatives. Ireland witnessed volume and revenue declines in part due to the tough comparatives from the exceptionally warm summer in H218. France had a difficult FY19, with revenue and volumes down sharply, across both branded and private label. The introduction of the EGalim law, which regulates promotional activity and margins, had an adverse impact across the branded portfolio. Brazil and International were up strongly.
Britvic’s strategy has evolved as consumer tastes and preferences are changing. The strategy builds on previous pillars, and revolves around: (1) focusing on core brands; (2) redefining the role of each market; (3) delivering efficiency to fuel growth while building capability to access new opportunities (potentially through selected M&A); and (4) increased focus on building trust and respect through its ‘healthy people, healthy planet’ initiative. Britvic’s strategy has generated good returns, with a six-year EPS CAGR of 9.2% and DPS CAGR of 8.5%, and management believes the business can continue to deliver dependable and profitable growth. Following temporary increased capex in order to implement the BCP, net debt should begin to normalize while the BCP-enabled cost savings and simplification should underpin long-term growth.
Britvic trades at a consensus FY20e P/E of 15.0x, a c 35% discount to the UK beverages sector, and a c 25% discount to AG Barr (calendarised), reflecting its geared balance sheet and the fact some of its brands are part-owned by third parties. However, we believe that with sustained earnings and income delivery, and reducing balance sheet leverage, those discounts should narrow.