In the Spotlight – Britvic
Britvic, the UK's biggest soft drinks group, set tongues wagging this week following news that it plans to raise US$250m in a private placement, leading analysts to believe the J2O maker is almost certainly on the acquisition trail.
Greg Feehely and Wayne Brown at Altium Securities said the announcement will surely give rise to further M&A speculation. "The group has agreed in principle for the realisation of a new $250m private placement which will initially be used to re-balance the group's debt structure," the analysts said. "However, this will provide the group with significant headroom (in addition to the GBP80m or so contained in the current facility) should it choose to make an acquisition."
Brown added that the company does need to make an acquisition and "it is the right time to do so".
"I think they must be very close," he told just-drinks, adding that he expects the group to target Europe, and particularly the Netherlands and Scandinavia where the firm already sells its Robinsons and Fruit Shoot drinks brands.
Feehely increased the group's price target to 420 pence from 380 pence due to "the expectation of mergers and acquisitions" and said "if current momentum is maintained then our forecasts are appropriate".
The company, which holds the UK Pepsi licence and sells Robinsons fruit juice, beat expectations in its full-year numbers on Wednesday (25 November). In the year to 27 September, revenues grew 5.6% to GBP978.8m driven by higher volumes and prices. Pre-tax profits rose 23.4% to GBP86.5m.
The UK's second-biggest supplier of carbonated drinks by sales, behind Coca-Cola Co., said net profit rose to GBP46.8m from GBP31.8m a year ago.
Higher profits however, came in spite of a small decline in the soft drinks market, Britvic said.
"Recent conditions in the GB soft drink market have shown some signs of improvement, although visibility in both GB and Ireland beyond the short term remains limited and we take a cautious view of consumer spending," chief executive Paul Moody said.
"However, we are encouraged by our strong group performance in the early weeks of the new financial year, building on our track record of top-line, margin and quality earnings growth," he added.
The group increased its guidance of margin growth over the next few years. The group now predicts that margins will increase by 50 basis points a year until 2013, compared with its earlier guidance of 10 to 15 basis points.
Nonetheless, analysts at Citigroup said that they were "a little cautious" on the revised guidance.
Ireland, however, continues to be the thorn in Britvic's side, with net sales down 5.6% over the year and a 17% fall in Irish profits. "The Irish economy has suffered far more severely than Great Britain," Moody said. "The challenges are more pervasive in Ireland and that has exacerbated consumer behaviour."
Britvic began 2009 by announcing 160 redundancies in Belfast, Cork, Waterford and Ballyshannon as part of a synergies programme that has contributed EUR15.3m to date. The company is now targeting further synergies of EUR9m in 2010 and EUR2m in 2011.
Moody however, is adamant the "heavy lifting has been done on costs" but insists the group continues to work "very hard" and isn't ruling anything out.
Britvic, which generates about 70% of its profit in the second half of the year with soft drink sales in the summer months, declared a final dividend per share of 10.9p, up 24% on Wednesday, claiming the outlook was "positive".
"Recent conditions in the British soft drink market have shown some signs of improvement but we take a cautious view of consumer spending. However, we are encouraged by our strong group performance in the early weeks of the new financial year," the company said in a statement.
Some observers see this as a confident move, but with Britvic's solid performance over the past year in a challenging market, this may well be justified.
The company said it hopes that the UK market will grow by 2% to 3% each year and that new products will add a further 1% to 2% to its sales each year. Moody also promised two big innovations will be announced in March next year.
This year, it launched Robinsons Be Natural and Juicy Drench, a squash and a mineral water, both targeted at the family market.
"Whilst 2010 brings its own challenges, the group has delivered meaningful cost reduction plans during 2009 and this should continue to drive EBIT margin expansion in the first half," the Guardian said.
"The prelims are in line with market expectations but with the expectation of M&A and the outlook now firmly moving into 2010, we feel a revised target price of 420p is warranted. Whilst the outturn of the important Christmas trading period is important we feel if current momentum is maintained then our forecasts are appropriate," it added.
Altium Securities raised its recommendation on the Tango-maker from hold to buy. It said the drinks firm faces a "challenging" outlook but is "impressed" by Britvic's proposition of a 15p per share full-year dividend.
Britvic shares were up 3.90 pence at 374.50p at 10.50am (GMT) today.
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