Jefferies starts Britvic at 'hold'

Jefferies initiated coverage of Britvic at ‘hold’ with a 650p price target.

The bank said that over the medium term, its see a robust earnings outlook driven by benefits from the Business Capability efficiency programme on both Britvic’s top and bottom line.

“From full-year 2018 onwards, there is potential for positive earnings momentum as the benefits from cost cutting are realised and tailwinds from favourable financial items from FY17 debt refinancing as well as a lower effective tax rate, given downward pressure on the GB corporation tax,” it said.

However, in the near term, it reckons the shares lack catalysts, with FY17 a year of transition given ongoing high capex levels and limited scope for positive earnings momentum.

“We believe that the potential negative impact of the Brexit vote on underlying consumption of GB soft drinks could be overdone. However, the company faces some uncertainty around the impact of the sugar tax into 2018 as well as input cost headwinds from GBP weakness.”

Following the UK’s vote to leave the European Union, the shares have de-rated by around 10%.

“With limited potential for a re-rating until there is better visibility on the impact of the sugar tax, the macro impact from Brexit and rising input costs from GBP weakness, we initiate with a ‘hold’.

Jefferies added that any volatility in the share price could offer an attractive entry point for longer-term investors.

At 1052 BST, the shares were up 0.2% at 320.50p.