Nice find Questor says BUY13 Jul 2012 10:07
Questor says BUY
Britvic
Britvic's profit warning this week must have prompted investors in the soft drinks group to reach for a gin and tonic. But for new investors, has the share-price slump delivered an opportunity?
Of course, the damage is much more than the £25m costs if we consider reputational harm. Supermarkets may not display the brand as prominently, consumers will have to move to rival brands while Fruit Shoot is not available and there may be extra marketing spend required to restore the reputation. However, management has accounted for this.
But, it must be remembered Britvic does have a strong portfolio of brands other than Fruit Shoot, which includes J2O, Tango and 7-Up.
The main subject of speculation now surrounds the dividend. Will it be cut – and if so by how much? After this week's tumble, the prospective yield is a very nice 6.5pc, rising to 6.8pc.
Questor spoke to Paul Moody, chief executive, yesterday. Obviously, the dividend will be decided at the end of the year, so Mr Moody could not confirm the payment would be maintained, but he said there was currently "no reason to believe the payment will be cut".
The current-year earning multiple is now 9.1 times, which is not overly cheap when compared with AG Barr, which is on 11.8 times.
Questor last covered Britvic on July 26, 2010, and investors were advised to sell and bank a 96pc profit. The shares were then at 505p, more than double the current share price.
On balance, Questor thinks that the shares are a buy for recovery, although investors must prepare for a slight dividend shock. Once that uncertainty is out of the way, a rerating is likely.
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