HSBC upgrades Britvic to ‘buy’, shares fizz higher

HSBC upgraded shares of drinks maker Britvic to ‘buy’ from ‘hold’ on Wednesday and lifted the price target to 1,050p from 900p on a better outlook.

The bank said Britvic’s market share in the UK has improved visibly in the last couple of years, both in carbonates and concentrates. Meanwhile, Brazil is on a growth trajectory and performance in the rest of the world benefits from restructuring of low-margin businesses.

HSBC said that prior to the pandemic, it was expecting 2020 to deliver a visible improvement in both top-line growth and margins given the improvement in operating capabilities achieved with the end of the Business Capability Programme.

"As we slowly return to normality, recovery of the on-trade in Great Britain and Ireland, and the restructuring of low margin businesses in ROW should visibly benefit the group P&L starting in 2H21.

"We believe FY22 will be a year of sustained top-line growth (+6.7% in FY22e) and margin accretion (EBITA margin +160 basis points in FY22e)."

HSBC said it remains concerned about cost pressures coming from disruptions in the supply chain in the UK and abroad, but Britvic’s simplified business and upgraded operations should enable the group to offset - at least in part - this pressure, leaving the balance to recover through price architecture.

"On the back of positive trading data in the UK and a more beneficial FX scenario, we increase our FY21-23 EBITA estimates 3-5%," it said.

At 1035 BST, the shares were up 2.5% at 910p.