US Edition Britvic
258p +2¾p
Questor says BUY
IT was a short and sweet statement, but the four-paragraph release saying that Britvic had renegotiated its lending facilities was greeted enthusiastically.
As the maker of Robinsons squash and fizzy drink Tango unveiled brief details of its revised £300m UK loan on Tuesday, the shares rose 4pc. A couple of stockbrokers have since upgraded their ratings on the company.
Concerns had been weighing on the shares as the market was well aware that the banking facility expired in May 2010. That loan had been with six banks – Barclays, Royal Bank of Scotland, HSBC, Bank of Ireland, Lloyds and Fortis – at 60 basis points above Libor.
The new deal will see Britvic's UK banking facilities rise to £333m for the next year as Abbey also opens its coffers. Then, from May 2010 for the following two years, the amount borrowed will drop to £283m as Fortis leaves the consortium.
While the new facility is being charged at 250 basis points above Libor, at the somewhat higher end of expectations, the renegotiation of terms will be a relief for investors. Britvic does have another facility in the US – worth £229m – but this is a long-term loan with another eight years to run.
Although concerns about the group's financing position have now eased, there are other issues that are becoming increasingly pressing. Investors are worried that Britvic, which bottles and distributes Pepsi in the UK and is behind fruit juice brand J20, could be hit by people downgrading to own-brand supermarket products to save money in these increasingly difficult times.
To date though, it is the more expensive end of the market where there are signs of a slowdown, such as in the sale of smoothies, an area in which Britvic doesn't dabble.
The recession being felt in Ireland – where the company generates a fifth of its revenue having bought cider maker C&C's business there in August 2007 for £170m – is much more of an issue.
Even Brian Lenihan, Ireland's finance minister, has predicted the economy will shrink by a further 8pc this year, on top of the terrifying 7.1pc contraction in the final quarter of last year. On a number of previous occasions Britvic has said that the Irish market is difficult and likely to remain challenging, but in January it also announced a restructuring of Britvic Ireland to help address this.
It said it planned to increase efficiencies and cut 145 jobs – equivalent to roughly 15pc of its workforce there. Ireland will remain a challenge, but Britvic's ability to refinance, and get a new bank on board in these turbulent times, shows lenders have confidence in the company. Britvic is now in a good position to seek merger and acquisition prospects – possibly in Europe – which would help diversify the group.
It should also benefit from the general trend where consumers are cutting back on alcohol consumption for both financial and health reasons.
Questor advised investors to buy Britvic shares last October when they were trading at 184¼p.
They have risen strongly since then, and trade on a forward multiple of 10 times earnings. This is still a marginal discount to the European beverages sector. Investors should use any dips in the share price as an opportunity to add to their holdings ahead of May 20's interim results.
Buy.
WS Atkins
506½p unchanged
Questor says AVOID
An awful lot has happened since Questor last took a peek at WS Atkins, least of all the collapse in the design and engineering consultancy group's share price.
Back in November 2007, Questor advised shareholders to take profits as the shares were trading at £12. Today, they are at less than half that.
Over the past year and a half, the meltdown in the property and construction markets have hit WS Atkins hard. The company, which provides advice on projects as diverse as building skyscrapers, upgrading rail networks and modelling a flood-defence systems, has seen its business dry up, leading to it shedding 1,200 jobs.
On Wednesday, WS Atkins attempted to reassure investors ahead of its preliminary results on June 17.
It said that, overall, the group has "continued to perform well". Pre-tax profits, after taking account of £10m redundancy costs, will be in line with market expectations.
Although the company described its key markets as "stable" and appointed Heath Drewett – who previously worked at PwC, British Airways and Morgan Crucible – as finance director, there is uncertainty ahead.
WS Atkins, which is the official engineering design services provider for the London 2012 Olympics, has seen no signs of a recovery in the UK building market and notes that confidence across the Middle East is "yet to return". On top of this, its pension deficit has ballooned to £215m from £154m at the end of March 2008, reflecting the falls in the stock market.
Trading at seven times forecast earnings on a yield of 5pc, the shares are starting to look attractive. WS Atkins should benefit from the Government bringing forward its £3bn of infrastructure investment to stimulate the economy.
The company said it has a "solid" order book, but the devil will be in the group's full-year numbers. Investors should hold off until then before looking at investing again.
Avoid.