Since we first wrote about Britvic PLC (LSE:BVIC, Financial) (BTVCY, Financial) (BTVCF, Financial) in December of last year, the stock is up 22% and still reasonably priced. Britvic is the British Pepsi distributor. The stock sold off in part because of Brexit concerns.
The stock trades for 6.765 pounds ($8.46) per share, there are 259 million shares and the market cap is 1.75 billion pounds. The dividend is 0.245 pence, and the dividend yield is 3.6%. Basic earnings per share were 43.8 pence and the price-earnings (P/E) ratio is 15.4.
When we first covered Britvic, the stock was trading at 5.54 pounds, so there has been a nice increase. The pound to the dollar conversion is about the same, so we did not get any help (or hurt) from that.
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: PepsiCo's 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 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 (LSE:SBRY, Financial).
As value investors, we always scour GuruFocus information. This time, it came from the FPA Cresent Fund. Britvic is one of the fund’s larger holdings. In a quarterly letter, ““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.”
The biggest challenge is the stock is thinly traded for the American investor. We had quite a time buying shares on Charles Schwab’s platform. You may need to buy in London instead of the pink sheets.
The long and short of it is you just do not see too many valuations out there like this. It is still a cheap stock based on valuation, dividend yield and growth. People have to keep drinking in good times and bad. I have always thought it is interesting how Pepsi teams up with a leader in a given country and lets them distribute their product. Coca-Cola (KO, Financial) prefers to keep a large block of stock and let the company go public in the home country. We own the stock and continue to hold. We think it is still undervalued.
Disclosure: We own shares.
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