Britvic fizzes despite dividend blow

The Britvic dividend is on ice, but resilient trading and staycation trends are boosting shares.

The first dividend blow in the 15-year stock market history of Britvic (LSE:BVIC) was softened today after the drinks company revealed resilient trading in the face of Covid-19 disruption.

Britvic shares jumped 5% to their highest in more than two months at 755p, despite the Robinsons and Fruit Shoot firm deferring its interim dividend decision until later in the year.

Analysts were more relieved that Britvic had left its previous guidance on the monthly earnings impact of Covid-19 unchanged at between £12 million and £18 million.

There was also some encouragement from the key figures in results for the six months to 31 March, with revenues growth of 1.4% implying a second quarter performance still 0.1% higher despite the disruption to out-of-home sales in the early part of the UK lockdown. The result was helped by consumers stockpiling multi-pack products for drinking at home.

The peak summer season is still to come, with investors hopeful that the easing of lockdown restrictions and continuation of good weather will assist the company. About 60% of its revenues comes from Britain, with another 16% in France.

Britvic shares have risen 25% since late March, including 13% over the past fortnight. Despite this progress, analysts at Jefferies said a price/earnings multiple of 13x looked to be attractive against a wider beverages sector trading on 22.5x and consumer staples on 20.4x.

They pointed out that the likely trend for staycations in the UK this summer could provide a further boost for the company, adding that its sales category looked to be more resilient than other drinks sectors in the case of weaker economic conditions.

Jefferies had a price target of 800p prior to today's results, with UBS at 750p and Barclays on 770p. The FTSE 250 index stock was trading at a record high near to 1,000p in October and at 931p prior to the Covid-19 market sell-off in mid-February.

The absence of a dividend payment in today's interims will not come as a huge surprise for investors, given that the company warned in March there was a risk of it being deferred.

Today's decision came despite Britvic's own Covid-19 stress test modelling showing significant liquidity headroom under its existing debt facilities.

The company said:

“Given the uncertain environment we find ourselves in the board has decided to take a very prudent position and defer the decision on the dividend until later in the year, when there will be more visibility of the full impact of Covid-19 on the business.”

Britvic has grown its interim dividend every year from 3p a share in 2006 to the 8.3p a share paid last year, worth around £20 million. Its total dividend has never been cut, with the 2019 figure at 30p a share.

Today's underlying earnings figure of £75.7 million was 9.4% higher than a year earlier and 5% stronger than UBS forecasts. The biggest Covid-19 impact for the period was in Britain and Ireland, where exposure to the out-of-home channel is greater than Britvic’s other key territories of France or Brazil, which are predominately at-home markets.

The company responded by reducing discretionary spend, and stopping non-essential and non-committed capital expenditure. It has £1 billion bank facilities, plus the option to increase its revolving credit facility by £200 million and access to £600 million of private placement notes.