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Europe Pepsi Bottler Britvic Down With Concerns

Company has sold off over Brexit and inflation

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Holmes Osborne, CFA
Dec 20, 2016
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Britvic (

BTVCY, Financial)(BTVCF, Financial) is the Pepsi bottler for the U.K. and parts of Western Europe. The stock has sold off with concerns over Brexit and inflation in commodities. It might be a good time to buy.

The stock trades for 5.54 pounds ($6.89), there are 259 million shares, and the market cap is 1.43 billion pounds. The dividend is 0.245 pence, and the dividend yield is 4.4 %. Basic earnings per share were 43.8 pence and the price-earnings (P/E) ratio is 12.6.

Sales grew from 1.14 billion pounds in 2010 to 1.3 billion pounds in 2015. Free cash flow grew from 49.6 million pounds to 105.8 million pounds. Operating margins are usually in the high single-digit to low double-digit range. EBITDA margins were 13.2%. In the fiscal year ending in October, sales were up 10.1% to 1.431 billion pounds, earnings per share were up 4.8%, and the dividend increased 6.5%. There is 782 million pounds in short- and long-term debt and 263.9 million pounds in cash and equivalents. The balance sheet is very solvent.

Brands include: Pepsi (

PEP, Financial), Gatorade, Mountain Dew, Sobi, 7-Up, Liptons, Robinsons and many other brands. Maguary and Dafruta were added last year in Brazil. Great Britain accounts for 68.2% of sales, France 18.5%, Ireland 9.3% and international 4%. Management knows that there is a push away from sugary drinks with global obesity problems. Britvic is pushing its waters and other healthy products. Major accounts in European restaurants include KFC, Subway and Fuller’s. Britvic is making a big push with children with the new product Fruit Shoot, even introducing the product into the U.S. and Brazil. Of course the company’s products are carried at the larger grocers such as Tesco (TSCDY, Financial) and Sainsbury (SBRY, Financial).

It looks like Brexit has hurt the stock. There is fear of the weak pound increasing the price of sugar and other commodities. In a recent report, management stated that the company is 80% hedged in currencies and has bought forward contracts on many commodities.

I learned about the company by reading FPA International’s quarterly letter. FPA noted, “More recent troubles stemmed from its unpopular decision to delist a top high sugar-added product, a weak trading environment no longer offset by low commodity prices and higher labor cost inflation from the new National Living Wage in the U.K.”

Ireland is planning on instituting a sugar tax, but Britvic states that 60% of its products there do not contain sugar. In November, the company announced that it is purchasing a drinks wholesaler in Ireland.

I see that Pepsi is sold at Lidl’s in Britain. I’ve written on how Lidl’s and Aldi’s have hurt the established grocers in Britain. I did several searches and didn’t see any products offered at Aldi’s in the U.K. or anywhere else in Europe. Perhaps there are, but I didn’t see any. This is a link to an article on GuruFocus about how the two are disrupting grocers and entering the U.S.

So would I buy shares? Maybe. It’s an established product, the stock is extremely reasonably priced, there is a nice dividend, and the balance sheet is strong. I’m going to read some more annual reports. I like buying stocks when there is a little uncertainty, and the future is a little cloudy.

Disclosure: We do not own shares.

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