London-listed soft drinks manufacturers Britvic (LSE: BVIC) and A.G. Barr (LSE: BAG) have both seen their share prices rally in recent months, but in my view only one of them is worthy of a long-term investment.
Last months interim results showed that FTSE 250-listed Britvic still had plenty of sparkle, with a strong first-half performance delivering an 11.5% increase in revenue to 756.3m, compared to 678m for the same six-month period a year earlier.
The Hertfordshire-based drinks maker which haswell-knownbrands such as Robinsons, J2O, Tango, and Fruit Shoot in its portfolio, also has exclusive agreements to make, distribute, and market global brands such as Pepsi and 7UP on behalf of US multinational PepsiCo. This vast portfolio helped the business to achieve a 6.7% rise in pre-exceptional earnings (before interest, tax, depreciation and amortisation) of 73.6m, enabling it to declare a 2.9% increase in the interim dividend to 7.2p per share.
Britvic is Britains largest supplier of branded still soft drinks, and the number two supplier of branded carbonated soft drinks, but its operations are by no means confined to the UK. The company is also an industry leader in Ireland with brands such as MiWadi and Ballygowan, in France with brands such as Teisseire and Pressade, and in Brazil with Maguary and Dafruta.
Britvic is also growing its reach into other territories through franchising, export and licensing. Over the years, management has successfully developed the business through a clear strategy of organic growth and international expansion based on creating and building scale brands.
After a strong share price rally since December, the shares are fast approaching the highs of 777.5p achieved in 2014, but I think theres plenty more fizz left in the price. Steady earnings growth forecast over the next couple of years will leave the shares trading on a not-too-demanding P/E rating of 15, and supported by a juicy dividend yield of 3.4%.
Meanwhile, soft drinks rival A.G. Barr has also enjoyed a share price surge in recent months, with its shares climbing from 501.5p at the start of the year to todays levels around 653p.
But the Scottish drinks maker is facing challenges, with ongoing changes in consumer tastes and the governments announcement of a sugar tax in last years budget leading to major staff downsizing and cuts to the sugar content of its IRN-BRU brand.
Nevertheless, sales of its core brands IRN-BRU and Rubicon rose by 3.2% and 4.9% respectively during 2016/17, helping to push revenues up 1.5% to 257.1m. But analysts in the City are forecasting very little growth over the next couple of years, and this leaves the shares trading on a pricey multiple of 22 for FY2018. I would say A.G. Barr is one to avoid for the time being.
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