The Road to Recovery

The Week: Britvic's reporting period makes it difficult to compare results with last year, and Stagecoach looks to be turning a corner

Rodney Hobson 29 May, 2020 | 9:43AM
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It’s swings and roundabouts for some companies during the lockdown,and that certainly applies to soft drinks supplier Britvic (BVIC).

Sales through the hospitality industry have understandably slumped since mid-March but this has been partly made up for by sales for home consumption. Even so, there is an inevitable impact that will continue until pubs and restaurant fully reopen.

The full effect is not clear, as Britvic has chosen to produce figures for 26 weeks to the end of March rather than the 28 weeks to mid-April it reported last year, which conveniently chops out a couple of weeks of affected trading and makes comparisons difficult.

Revenue on a comparable basis was 1.4% higher, a commendable performance, but Britvic does not give a pre-tax profit comparison, jumping from the meaningless EBIT to post-tax profit, which leaves me a bit suspicious.

A decision on the dividend has sensibly been postponed to a later date but the second half is clearly going to be tough, with a much longer period of restricted trading included. As restaurants look set to open with tables further apart (and thus fewer in number), pubs probably not opening until autumn at the earliest, and events attended by large numbers of people possibly not allowed for even longer, sales are likely to be seriously lower.

The shares dropped from 911p to 602p in the market slide, pretty much in line with the average, but have picked up to 750p. One might have expected a more confident recovery at a business whose products are still going to be in demand.

The company will come good eventually and the setback will be less severe than for many, but the wait for better times is likely to be longer.

Turning the Corner

It’s a bit of an obvious cliché to say that it has been a bumpy ride for bus operator Stagecoach (SGC), with the shares halving from 160p at the start of the year to a low of 51p this week, but the bottom of the road may indeed have been reached at last. Stagecoach has enough cash to see itself through the worst of the crisis and will start to return to normal soon.

The company says it has £800 million available thanks not only to new banking facilities but also positive cash flow, which is remarkable given that the number of travellers on public transport slumped for two of the 12 months to May 2. Regional bus operations are currently bringing in just 17% of normal revenue.

However, Stagecoach is sufficiently confident of the future to be stepping up capital spending in the new financial year by an extra £14 million, mainly to buy more vehicles for early delivery. That’s optimism for you, seeing that the company believes the new normal will see more people working, shopping, seeking medical advice and providing education at home. The hope is that services will start returning to pre-coronavirus levels quite soon and, in the meantime, the Government is providing compensation for lost mileage.

Annual results have been delayed for a month until the end of July, which is reasonable given the difficulty of drawing up figures and getting them audited in the current situation. At least by then we will have a better idea of how the current financial year is panning out.

Meanwhile, the shares have ticked up to 70p. I have long been doubtful about the direction that Stagecoach has taken and caution is still required, as the first attempt for the shares to break upwards came to nothing, but given that the outlook is improving this could be a good time to take a look.

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About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.