Shore Capital upgrades Britvic to 'buy'

Britvic’s share price declined sharply post its first-quarter statement on 31 January and in absolute terms has fallen by 15% in the past month and closer to 20% peak to trough, notes analyst Phil Carroll.

After moving to a negative stance on the stock in December due to concerns over valuation especially with the uncertainty of sugar tax ahead, he now believes Britvic shares "look compelling".

Carroll's forecasts are below consensus expectations and there is a prospect of a "rising attractive free cash flow yield" once the drink-maker emerges from its three-year capital investment programme.

Therefore, the ShoreCap man's recommendation has been upgraded from 'sell' to 'buy'.

The shares are currently trading for 13.6 times the 2018 full year earnings per share of 50.8p that Carroll has forecast, which take account of a shift in some customer-related investment spend from selling and distribution costs to revenue and moves some incentives from suppliers from revenue to cost of sales.

"The valuation based on Bloomberg consensus is 13.0x. We believe we have taken quite a prudent view of the year ahead given the introduction of the sugar tax," the analyst said. But he stressed that "even taking into account any downward pressure on market expectations, the valuation remains historically attractive".