Investment Column: Drink in Britvic but pray for hot weather
Avocet Mining; Vertu Motors
Wednesday 15 April 2009
Our view: Buy
Share price: 255.25p (+9.75p)
Like rival drinks companies, Britvic has not had any help from the weather in recent times, with poor summers spoiling the last two years. Still, the maker of Robinsons squash is at least enjoying this spring, having just completed a refinancing of its debt facility. Britvic, which also bottles and sells Pepsi and 7UP in the UK, has agreed a six-bank £283m revolving multicurrency facility which replaces the £300m facility that was due to end next May.
The removal of the refinancing hurdle – this deal expires in 2012 – was toasted by investors yesterday. And City analysts reiterated that Britvic has a defensive portfolio of products of carbonates and squash that tend to be resilient in a recession. Even better, in January, Britvic said it had been outperforming the soft drinks market over the 12 weeks to 21 December. The City reckons its shares trade on a 2009 price to earnings ratio of 9, below the European sector average of about 11.
On the downside, Britvic did not disclose the fees paid to refinance its debt, which will have been hefty, and this is a two-year extension rather than three or five years. Also, the company makes most of its operating profit in the UK, which is still mired in recession.
Still, Britvic, which has a well- regarded management team and strong brands, should be well positioned to benefit from the inevitable upturn in consumer spending. And analysts – who have forecast a pre-tax profit of £72m for the year to 30 September – will dig out their upgrade pencils if the British summer turns out to be a good one. Wayne Brown, of Altium Securities, says: "The big question for the business and the industry is whether the sun comes out this summer." Buy.
Our view: Buy
Share price: 71.25p (+1.25p)
What do you do if you are a gold miner with a strong balance sheet and healthy prospects in South-east Asia? Do you (a) lay low until the financial and economic storm passes, or (b) expand your clout in the region by going on an acquisition spree? If you are Avocet Mining, you buy a cash-strapped, debt-laden counterpart in West Africa, pegging your hopes on milking its richest asset and, in one $155m-plus manoeuvre, nearly double production rates and boost your resource base.
The target in question is Wega Mining, an Oslo-listed company which, according to market analysts, has run out of money following a cost overrun while developing the Inata mine in Burkina Faso. Avocet plans to buy Wega in a complex deal that is expected to be completed in the summer, and bring Inata, which is slated to commence production later this year, back on track. The mine will give Avocet an entry into the highly prospective West African gold belt, a region which will be well known to investors in the sector. The asset also promises to reduce operational risk, as the company will end up less dependent on its Penjom and North Lanut projects in Asia.
All this looks set to work if Avocet can steer Inata out of the doldrums. So, can it? The company does not know West Africa so well, but argues that the commodities slump at the end of last summer left a lot of people with the right experience available to work on mines such as Inata. With a clement government in Burkina Faso and a clear plan on the part of Avocet's managers, a lack of familiarity with the region may not be as big a factor as one might think.
Moreover, Avocet continues to trade on relatively affordable multiples. The stock is down by more than 16 per cent since the beginning of this year, compared with a 15 per cent gain for the Aim 50 index, of which it is a constituent. Avocet is cheap, and after this deal is on track to become one of the biggest gold miners on Aim. We say "buy".
Our view: Buy
Share price: 25.5p (+4p)
Life may be about to get much better for car dealers, with a scrappage scheme now expected in next week's Budget. Talk of incentives of £2,000 for car owners to ditch their old bangers and invest in a new car buoyed listed dealers such as Inchcape and Pendragon, but shares in the Aim-listed Vertu Motors were slower to react.
Vertu was launched four years ago by former senior managers from Reg Vardy. It is smaller than some of its rivals, with 45 dealerships, and has good scope to grow. The group put out a strong update at the beginning of last month. Pre-tax profits were only slightly down to £3.3m, and sales markedly outstripped the market.
Management has a good control on costs, and £1m of its planned £1.8m savings will fall next year. The debt levels are more than manageable at £10.6m, which is down from £16.9m the previous year and forecast to fall further in 2010. Not enough of this was reflected in yesterday's price rise. Buy.
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