Sector spotlight: beverages

In this week’s sector spotlight, I take a look at Beverages and the companies in this sector that I think look most interesting.

Article updated: 8 July 2020 8:00am Author: Michael Baxter

The COVID-related lockdowns have hurt some beverage companies and been a boon to others, so let’s take a look.

AG Barr

Not to be confused with Attorney General Barr, AG Barr  has been around since 1875. These days its most famous brand is IRN-BRU, although Tizer, which was a massively popular drink a few decades ago, is one of its other brands.

It’s not been a good year for AG Barr, and it has been a funny old 40 months. The shares took a hammering thanks to Covid shutdowns, nothing new there, of course. But it suffered another blow after the US energy drinks company Rockstar terminated its contract with the company. Sales from the range of energy drinks made up 8% of AG Barr’s revenue.

As for the last three and half years, shares have doubled and then halved. Between December 2016 and June last year they soared, but have fallen right back down again over the last 12-months.

Last year pre-tax profits dropped 18 per cent. Then Covid happened.

A recent company statement read: “As previously announced, trading continues to be adversely impacted by the Covid-19 lock-down measures introduced on March 23, with trends affecting our major retail, impulse and hospitality channels continuing as previously indicated. At the current time it remains difficult to predict how the balance of the financial year will evolve, with the easing of lock-down restrictions and resulting impact on consumer purchasing patterns."

Recently ShareCast quoted Shore Capital as saying: “Barr is a class act, one of the finest beverage companies in these Isles.

Period Share price (approx)
Share Price 456p
2020 high 627p
12-month high 926p
All time high 970p (June 2019)
Five-year performance Down by a fifth
Performance this century Shares up six-fold
P/E 17
Market cap £510 million
Dividend Yield 0.88%

Britvic

Britvic brands include Robinsons, Tango and J2O. Britvic is the largest supplier of still soft drinks and the number two supplier of carbonates.

It’s not been a great few years for Britvic, pre-tax profits were lower last year than five-years age, for example.

And let’s face it, sugary drinks are not in vogue.

But the company has been ploughing money into developing healthy soft-drinks and the adult soft drinks market has enormous growth potential.

Then again, the Britvic P/E ratio can only be justified if growth sees a big pick-up.

Period Share price (approx)
Share price 772p
2020 high 921p
12-month high 1,060 (October 2019)
All time high 1,060
Five-year performance Up by a little less than ten per cent.
Performance since 2005 Shares have trebled
P/E 25
Market cap £2 billion
Dividend Yield 3.8%

C&C Group

Here is the problem for C&C Group, its top brands Magners, Bulmers and Tennent are primarily sold through pubs. 80% of revenue is derived from the on-trade channel.

And although it has seen a pick-up in sales to the home market, the lockdown has hit C&C Group hard. And what a wasted summer; one can imagine that in a parallel universe, where there had been no lockdown, sales would have soared in what has been a hot summer so far.

In the year ended 29 February 2020, pre-tax profit before exceptional items jumped 12% to $104.1 million. But after those exceptional items it was just $11.6 million.

It’s been burning through cash too, although it managed to complete a £127 million bond deal earlier this year — that will help.

Revenue increased from €861 million in 2017 to €2.1 billion in the year to February.

Period Share price (approx)
Share price 228p
2020 high 410p
12-month high 410p
All time high 1,125p (2006)
Five-year performance Down by a third
Performance since stock market debt in 2004 Shares increased five-fold within two or three years of the company joining the stock market, but those gains have reversed and it is pretty much back to where it started
P/E 92
Market cap £708 million
Dividend Yield 2.0%

Diageo

One of the biggest companies listed on the FTSE, Diageo brands include Johnnie Walker, Guinness, Smirnoff, Baileys and Captain Morgan.

Pre-tax profits are up 40% since 2006, not bad for a largempany operating in a relatively mature area.

The opportunity for growth primarily relates to mature markets. But sales have been hit by Covid lockdowns and fears over trade wars.

But Diageo’s track record is solid, so good in the long term.

Period Share price (approx)
Share price 2,727p
2020 high 3,250p
12-month high 3,600p (September 2019)
All time high 3,600p
Five-year performance Up by a half
Performance since stock market debt Up six-fold since 1995
P/E 21
Market cap £63 billion
Dividend Yield 2.5%

Fevertree Drinks

During the early stages on the Covid lockdowns Fevertree Drinks shares crashed, but have since recovered.

There is no denying the extraordinary rise to pre-eminence of Fevertree especially, as tonic water mixed with gin.

The company has had a good lockdown, as people chose to sip its products from home.

But can the growth continue? The key lies with its ability to crack America.

Period Share price (approx)
Share price 2,198p
2020 high 2,091p
12-month high 2,500p (July 2019)
All time high 3,864p
Five-year performance Shares up six-fold
Performance since stock market debt in 2014 Shares up 13-fold
P/E 43
Market cap £2.5 billion
Dividend Yield 0.69%

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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