JP Morgan Cazenove initiates coverage of Britvic and AG Barr

JP Morgan Cazenove has initiated coverage of soft drink companies Britvic and AG Barr at ‘underweight’ and ‘overweight’ respectively.

In a note on Tuesday, the investment bank said Britvic’s shares have outperformed the sector since 2013.

“The 2013 restructuring programme has largely been completed, the cost savings achieved and we expect EBITA growth (ex-acquisitions) to slow significantly to 2% p.a. in FY16E-FY17E vs. 14% EBITA CAGR in FY13-FY15.”

It said it expects lower incremental returns from the company’s British supply chain programme “as the low hanging fruit has been reaped”.

“It would be optimistic to assume that all of the benefit would be incremental, given the tough UK retail environment, in our view.”

JP Morgan Cazenove also believed Robinsons will require significant investment to regain its appeal to customers.

With AG Barr, the bank said it expects the company to outperform the market “as it over-indexes in the high growth on-the-go vs. the struggling grocery channel”.

It also highlighted that the company has strong brands in water and energy, but no brands in the challenging squash category – a sector Britvic has a presence in.

JP Morgan Cazenove set a target price of 650p for Britvic and 620p for AG Barr.

Shares in Britvic were down 13p (1.78%) to 715.5p at 1032 GMT, while shares in AG Barr were down 2p (0.37%) to 533.5p.