HSBC downgrades Britvic as investment plan puts pressure on FCF generation

HSBC downgraded Britvic to ‘hold’ from ‘buy’ and slashed the price target to 700p from 860p.

The bank said Britvic’s strategy is sound.

“The investment in the UK is required, Brazil should be a medium-term growth driver and we continue to see good growth potential from Fruit Shoot in the US.”

However, it said the combination of the acquisition of Ebba and the anticipated three-year investment programme of around £225m in the UK places considerable pressure on free cash flow generation and reduces the returns profile for the next three years.

The bank updated its forecasts for both the increased capex assumptions for the next three years as well as factoring in a slower growth environment for the soft drinks markets that Britvic operates in.

Its earnings per share estimates fall by 5% to 46.1p for full year 2016 and 8% to 48.8p for 2017.

HSBC said its forecasts suggest EPS will rise by 1%, 6% and 9% in FY2016, 2017 and 2018, respectively.

At 1247 GMT, Britvic shares were down 0.4% to 710p.