US food and drink behemoth PepsiCo is selling up to all of its long-held 4.5% stake in Britvic (BVIC), news which sees shares in the UK soft drinks giant sour 3.25% to 699.5p.

PepsiCo’s brand portfolio includes Pepsi-Cola, Frito-Lay, Tropicana, Quaker and Gatorade; 22 of its brands generate more than US$1bn in retail sales each and every year.

Led by chairman and CEO Indra Nooyi, the New York Stock Exchange-traded snacks titan is in the midst of a five-year $5bn cost-cutting drive. It is placing around 11.8m shares held by its Tropicana UK subsidiary with institutional investors. The share disposal will rake in around £82.5m, based on this morning’s lowered Britvic share price.

Why investors are unsettled

The sale is significant because Britvic serves as PepsiCo’s bottler and distributor of brands such as Pepsi, 7UP and Mountain Dew Energy in the UK and Ireland. The £1.91bn cap also manufactures and sells its own brands including Fruit Shoot, Tango, Teisseire and Robinsons.

Posted after yesterday’s London market close, the announcement states that ‘PepsiCo’s decision was made as part of a routine review of its asset portfolio and has no impact on PepsiCo’s longstanding and valued bottling relationship with Britvic’, although the sale has unsettled investors at the open this morning.

Simon says

Britvic CEO Simon Litherland seeks to soothe sentiment in the statement, commenting:

‘The relationship between Britvic and PepsiCo is longstanding and has been mutually beneficial to both parties. We have been the sole bottling partner for PepsiCo in Great Britain for the last 30 years and in that time, we have delivered significant growth for PepsiCo, led by Pepsi Max, and successfully expanded our bottling agreement into new categories. Both Britvic and PepsiCo are committed to continuing to build on the success we have achieved to date into the future.’

Britvic - MAY 17

Swirling headwinds

Earlier this week (24 May), Britvic served up a solid set of half year results and expressed confidence in meeting full year forecasts. Organic growth was generated in all Britvic’s markets and profits progress was delivered in spite of swirling cost headwinds, with the recent £54m acquisition of concentrates and juice business Bela Ischia augmenting the rise at the top line.

Investec Securities moved its recommendation down from ‘buy’ to ‘hold’ following a strong share price run, explaining ‘the bigger second half is yet to play out and comparatives get tougher in the fourth quarter’ and pointing out that ‘full year 2018 might be more of a challenge as its full sugar Pepsi-owned brands navigate the sugar levy'.

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Issue Date: 26 May 2017