deepsleeves
08 Jan 2018
Re: Numbers I agree that at current prices this looks "toppy" and have halved my holding as I see better dividend prospects elsewhereDeep
gamesinvestor
20 Dec 2017
Re: Numbers "As I said, I do see how you can justify a SP around 800p... no more, for me!"It's on the fence for me, it being my nth biggest gainer this year after, quick check :-Renishaw, PayPal, Apple, Microsoft, Estee Lauder, Victrex, Burberry-sold, Rathbone-sold -- yep - 9th best to date.Games -- should I stay or should I go? -- I think I'll wait during the Santa Rally
Bill1703
20 Dec 2017
Re: Numbers "I'm not sure I understand the rationale for this, but nontheless what about the similar hedging number for last year -- how does the 2016 number compare to the £87M in 2017?"The corresponding figure was quite a bit higher - £157.5m at end FY2016 - but equally, gross debt (in sterling terms) was correspondingly higher. It's not that uncommon, and I think it correct to treat it as part of the true, underlying net debt calculation... it is a liquid "cash" asset, with a value readily realisable in the market, and though it will be volatile (eg. with FX movements), this will be matched and balanced by similar volatility in debt values when translated back to sterling. That is their point! "On another point though it's worth considering the overall liabilities (as highlighted in my original version, albeit perhaps not considered a true net debt)... you will see that the tax liability, pension liabilities have improved, etc - resulting in an overall reduction in liabilities... The one consideration that is a concern, and granted this is only a transitory measurement, is that the receivables have improved £317.9M to £321.1M but the trade payables have jumped quite a bit..."Yes, but this is a very different assessment, totally distinct from net debt considerations. And I am not sure it's particularly meaningful here, for a business with BVIC's characteristics... perhaps more so for one (eg. some engineering companies, aerospace etc) with much lumpier revenues and cashflows, with a small number of big individual contracts, and so on. But for many companies, elements like trade debtors and creditors are highly volatile figures which can swing wildly from period to period, even day to day... to repeat, a balance sheet is merely a snapshot on one particular moment in time, a lot of these figures could look very different if the date was struck even one week later.Overall, IMHO, not time well spent to tie yourself in knots worrying about at least some of these movements here. Other than the point that, they do betray the positive overall working capital movement in FY2017... more often than not, this is more likely to reverse in the following period, or subsequently - yet FCF was relatively low again in FY2017, even with this benefit? It was my original negative point - not a source of massive concern, but something to keep a careful eye on."Still I think on balance Britvic has some pretty timeless brands now like J20, Fruit Shoot, Robinsons etc and they are in the unique position to sell Pepsi's products which despite a reduction in soda sales, have held up pretty well for the group."Some good brands, yes... hardly timeless! Where was J20 and Fruit Shoot fifty, or even 20 years ago... and whither these 20 years from now? And the outlook for sugary, articificial "soft" drinks isn't exactly set fair - notwithstanding the undoubted strides towards much "healthier" products (it's all relative!)As I said, I do see how you can justify a SP around 800p... no more, for me!
Bill1703
20 Dec 2017
Re: Britvic review "... free cash flow has been consistently healthy and the dip in the free cash flow of late is explained quite well by the extra capital expenditure on plant, equipment and acquisitions... ROCE at Britvic has been consistently high over the years."Ah, the old ROCE farrago... that seductive siren song, luring unsuspecting investors onto the rocks, to join the wreckage of Next, Capita and all the other stocks showing "consistently high" reported ROCE even as their SPs halve then plunge further from there...Yes, return on capital employed matters, in the sense of true incremental returns... but you get little sense of this from "ROCE" data as commonly calculated, inevitably backward-looking as it is and always at the mercy of stated balance sheet values, which may or may not be at all meaningful to the investor of today, looking forward.The clue here is that BVIC trades at over 6x market cap to stated Net Assets - in essence, telling us that the balance sheet values bear little relation to the true, current economic value of assets employed in the business. So showing high reported ROCE is pretty much meaningless - perhaps of some relevance to an investor who has been on the register for the duration, but only in telling him/her where they've been, not nearly so much about where they are going now. To the new investor buying in today, it is irrelevant, as they cannot "buy" this ROCE, they are having to pay a much higher price for the asset opportunity (some 6x, here) - what matters to them is the future returns on THEIR capital employed, not on some random and deeply historic figures on a balance sheet.In simple terms, what matters are the returns BVIC now earns on this £60m spent on acquisitions last year, or the extra capex being ploughed in. Not so easy to say what these are now, and harder still what they will be going forward... Much easier to actually calculate an historic "ROCE" figure, but easier doesn't mean more helpful. "Another point to note is :- ""... Britvic's earnings power value (EPV) explains nearly 90% of its current enterprise value - in other words not much future profits growth is being priced into the shares.""... OK we are two years on from 2015, and the share price is now 805, not 532, however, the point is still valid."Yes, perhaps still valid as a point, but I would respectfully suggest, there's a world of difference as an investment assessment between 532p and 805p! It basically says BVIC was looking attractive on a risk/reward basis at 532p - as you yourself successfully concluded - but it doesn't tell me whether the shares are really worth £8, or perhaps £10, or maybe much nearer £6. And from HERE, I would say, that's a kinda important consideration - for both current and prospective new investors!FWIW I think BVIC is not far off 'fair value' here - we can argue the toss over 25p or so either way. 15x P/E, 10-11x EV/EBITDA, a divi yield a bit below 3.5% - it's more or less a market-average rating... Not too demanding, particularly if you start looking at sector peers (but always beware the perils of pricing highly-rated stocks off of each other!) - but not sure I would want to pay any more than this. The low FCF yield is a big caveat for me - as you say, it might improve substantially if they start spending a lot less, but only time will tell if they will, and if they actually can...
gamesinvestor
20 Dec 2017
Re: Numbers """No, I am talking about net debt rising from £416m to £503m - so a rise of £87m, of which only £60m can be explained away on acquisitions."""""You then have £87m of derivatives hedging balance sheet debt""I'm not sure I understand the rationale for this, but nontheless what about the similar hedging number for last year -- how does the 2016 number compare to the £87M in 2017?On another point though it's worth considering the overall liabilities (as highlighted in my original version, albeit perhaps not considered a true net debt) and how they have compared -- so taking into account receivables and payables in each year.If you incorporate the other liabilities you will see that the tax liability, pension liabilities have improved, etc - resulting in an overall reduction in liabilities from £1353.4 in 2016 to £1273.7 -- so moving in the right direction.The one consideration that is a concern, and granted this is only a transitory measurement, is that the receivables have improved £317.9M to £321.1M but the trade payables have jumped quite a bit from £437.2M to £472.6M -- an increase of £35.4M or 8% -- I assume a lot of this is due to set up costs etc in South America under the new acquisitions and promotional launches -- (a guess).Still I think on balance Britvic has some pretty timeless brands now like J20, Fruit Shoot, Robinsons etc and they are in the unique position to sell Pepsi's products which despite a reduction in soda sales, have held up pretty well for the group.The opportunity, and the risk of course, is with all those folk down south of the Tijuana border.Games
Bill1703
20 Dec 2017
Re: Balance Sheet "If anything the balance sheet has been strengthened between the two periods, as the short term "interest bearing loans and borrowings" have been reduced from £288.1M in 2016 to £89.7M in 2017. Albeit at the expense of the cash which has now hit £82.5M compared to £205.9M in 2016."Yes, I wouldn't put any real weight on this - often it reflects a mere few weeks difference on maturity dates of short-term finance, etc, and the balance sheet values are only ever a snapshot on one particular day. You could strike a balance sheet date one week earlier, or later, and some of the figures might look very different.For a business such as BVIC, with steady and relatively predictable gross cash generation, it is the overall underlying net debt picture which is by far the most important. And as I say, there is no real alarm here... ND/EBITDA stands around 2.1x, a decent level of leverage and you wouldn't want it massively higher, but for this kind of business, perfectly sustainable IMHO. Likewise interest cover (EBIT) at just over 9x.
Bill1703
20 Dec 2017
Re: Numbers "... but how are you calculating the net debt, it would help if you showed me what you are including in your figures to arrive at the numbers you quoted... Given the defacto formula for net debt as derived from this :-""Net Debt = Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents"" .."Games - yes, in simple terms, that is indeed the operative formula. Taking the FY 2107 balance sheet figures for BVIC, you have £89.7m of short-term debt (in current liabilities), plus £582.7m debt in long-term liabilities, less the £82.5m of cash/equivalents - which nets off as £589.9m, in line with what they "report" as unadjusted net debt.You then have £87m of derivatives hedging balance sheet debt (across both current and long-term assets, and further detailed in the notes to the accounts), which gives you the overall £503m of "adjusted" net debt, as reported. I am happy enough that this is the better and most "meaningful" figure, as the market value of the derivatives contracts will only go down with a corresponding fall (ie. due to FX movements) in sterling value of debt. But up to others to decide which figure to look to.There is a further £7m of derivative (short and long-term) liabilities (£2.7m + £4.1m), which they don't count as hedging balance sheet debt... I'd have to dig around to determine exactly where they fit in, but it's pretty much de minimus for me.
gamesinvestor
19 Dec 2017
Britvic review This review from Phil Oakley, whilst generated a while back, is still relevant in many respects :-[link] does highlight that Britvic's free cash flow has been consistently healthy and the dip in the free cash flow of late is explained quite well by the extra capital expenditure on plant, equipment and acquisitions.He does make this comment worth noting :-""""Spending money on new assets can help a company grow its profits in the future but it reduces cash flow in the short-term. Lower free cash flow isn't always a cause of concern as long as ROCE is holding up or improving. This is what has been happening at Britivic which is a good sign."""ROCE at Britvic has been consistently high over the years.Another point to note is :-""Based on current 2015 EBIT staying the same forever, Britvic's earnings power value (EPV) explains nearly 90% of its current enterprise value - in other words not much future profits growth is being priced into the shares.""OK we are two years on from 2015, and the share price is now 805, not 532, however, the point is still valid.Unlike your Fevertree's and many other highly rated stocks in the FTSE 250 where EPV probably reflects the next 5-10 years of growth baked in and more in some cases.Games
gamesinvestor
19 Dec 2017
Balance Sheet If anything the balance sheet has been strengthened between the two periods, as the short term "interest bearing loans and borrowings" have been reduced from £288.1M in 2016 to £89.7M in 2017. Albeit at the expense of the cash which has now hit £82.5M compared to £205.9M in 2016.The net assets are now up at £339.3m compared to £281M in 2016.That's if you put much store in these figures -- at least it reduces the short term obligations which has to be a good thing should then merde hit the fan and the revenue dives.Games
gamesinvestor
19 Dec 2017
Re: Numbers "Same source as you, Games, effectively"Bill OK that's good, but how are you calculating the net debt, it would help if you showed me what you are including in your figures to arrive at the numbers you quoted.Given the defacto formula for net debt as derived from this :-""Net Debt = Short-Term Debt + Long-Term Debt - Cash and Cash Equivalents""I'd need to see what you are including as Short Term Debt, and Long Term Debt for it to be a meaningful number.The Cash and Cash Equivalents figures are £82.5M and £205.9M for 2017 and 2016 respectively.Games
Bill1703
19 Dec 2017
Re: Numbers "Bill where are you getting these numbers from and how are you calculating them?I took mine from the actual numbers (albeit prelim) in this report, and ignored the adjusted stuff..."Same source as you, Games, effectively - the preliminary results statement and accompanying financials, gives me everything I need at least 95% of the time. In this case, the debt situation is reported in the financial review (£503m "adjusted" net debt, or £590m ex-derivative hedges - I am agnostic which of these figures is the more meaningful), then you can cross-reference against the figures and accompanying notes to the balance sheet."... not inconceivable that they won't be acquiring anything next year, so there is your first £60+M and it's also unlikley that they will need to spend £139M again on new plant and buidings... A low cash flow cover is only a weakness is it's consistent and there isn't the business to cover it in the future.... revenues are fairly predictable to a degree and it's need to spend in excess of £200M next year ... is unlikely... "Well, acquisition spend doesn't come into FCF considerations (or at least, shouldn't!) But beyond that, I generally agree, if FCF is depressed because of exceptionally high capex for a period, all well and good... as long as it is appropriate investment which will generate decent incremental future returns. But will it? Maybe, maybe not... little evidence of it thus far. And capex has been elevated - and FCF low (or even negative) for a few years now, as I recall... can they sustain their competitive position as and when capex levels return to more "normal" levels - if indeed they ever do? "It's on the fence for me, as I've entered this at 529, so with the dividends and gains I'm up close to 40%."So yes, I'm not saying it's a basket case, and it probably was cheap at 529p - as you have proved - and would be again. But at £8?? Not alarmingly expensive or anything, but not compelling overall, and actively underwhelming on a couple of metrics at least. And otherwise just raising a couple of key points which I think are valid questions for investors, maybe not outright concerns as yet, but certainly with the potential to become so.
gamesinvestor
19 Dec 2017
Re: Numbers ""No, I am talking about net debt rising from £416m to £503m - so a rise of £87m, of which only £60m can be explained away on acquisitions. That was my original point...""Bill where are you getting these numbers from and how are you calculating them?I took mine from the actual numbers (albeit prelim) in this report, and ignored the adjusted stuff, which I tend to do now.[link] things stand, they need to spend quite a lot less just to cover the dividend with FCF..."""Well it's not inconceivable that they won't be acquiring anything next year, so there is your first £60+M and it's also unlikley that they will need to spend £139M again on new plant and buidings -- they look like they have done this all this year, hence the weak free cash flow.A low cash flow cover is only a weakness is it's consistent and there isn't the business to cover it in the future. Looking at BVIC's business it's revenues are fairly predictable to a degree and it's need to spend in excess of £200M next year (this year even) is unlikley unless management decide there is another acquisition worth it's salt.Games -- It's on the fence for me, as I've entered this at 529, so with the dividends and gains I'm up close to 40%.
Bill1703
19 Dec 2017
Re: Numbers "If we use :- Net Debt = (Short-Term Liabilities + Long-Term Liabilities) - Cash and Cash Equivalents... To 2nd Oct 2016 it stood at 1147.5... To 2nd Oct 207 it stood at 1191.7 -- an increase of 3.8% -- not sure this is classified as a big increase..."Games - your formula doesn't give you net debt, you are mixing up various trade and other liabilities with actual financial liabilities. And fortunately so, you might say... don't think many would be comfortable with a business showing £1.2bn of net debt against trading profitability (EBIT) of notably under £200m...No, I am talking about net debt rising from £416m to £503m - so a rise of £87m, of which only £60m can be explained away on acquisitions. That was my original point..."Also looking at the cash flow statement :- £60.3M was due to acquisition costs, and £139M was due to purchase of property plant and equipment... interest payments on debt were £20M and dividends £64.9M... given that the acquisition and property costs should be much less next year, the cash flow should turn massively positive allowing a reduction in net debt by a large degree, and or a further increase in the dividend."Again, not sure whence your confidence? I calculate free cash flow of £31m FY 2017 (does NOT include acquisition spend) - better than previous year, when it was actually negative, but still pretty paltry... a FCF yield no better than 1.5%, less than a third the UK market average, and nowhere near to covering the dividend (FCF cover 0.4x). And this was after quite a big working capital INFLOW, which can often reverse the following period... you'd normally expect big positive NWC to result in higher than normal FCF, not a surprisingly low figure...I am not saying any of this is red-flag stage - as yet - with debt levels comfortable enough. But this is a business which is spending a lot of money, and has done for a while now, without necessarily delivering growth at a pace which you'd expect this super-normal spend to generate? Sure, cash flow COULD turn "massively positive", as you call it - if they can get by with spending quite a lot less, and if underlying profits grow fast enough, and if working capital doesn't reverse again... or any reasonable combination thereof. But how much visibility and/or confidence in any of the above can we have? As things stand, they need to spend quite a lot less just to cover the dividend with FCF...And it's not hard to find a good number of UK market peers - even within the same sector - where FCF cover is and has consistently been healthy (ie. 1.5-2x or more), and which offer decent FCF yields (ie. at least twice the BVIC level, and often a notably bigger multiple). And this was my ultimate point...
gamesinvestor
19 Dec 2017
Re: Numbers """A big increase in net debt, materially more than can be explained by acquisition spend"""Bill - Is this true, how are you calculating the net debt?If we use :-Net Debt = (Short-Term Liabilities + Long-Term Liabilities) - Cash and Cash EquivalentsTo 2nd Oct 2016 it stood at 1147.5To 2nd Oct 207 it stood at 1191.7 -- an increase of 3.8% -- not sure this is classified as a big increase.Also looking at the cash flow statement :-£60.3M was due to acquisition costs, and £139M was due to purchase of property plant and equipment resulting in a net cash outflow for the year of £188.5M when other factors are added back.Cash flows for finance were £130M of which :-The interest payments on debt were £20M and dividends £64.9MThe operating cash flow for the year were £198M and given that the acquisition and property costs should be much less next year, the cash flow should turn massively positive allowing a reduction in net debt by a large degree, and or a further increase in the dividend.Unless of course the business in Brazil etc turns significantly south - but I'm guessing Simon Litherland sees a big growth opportunity in South America, hence the acquisitions.Games
Bill1703
29 Nov 2017
Re: Numbers "Revenues and dividend up, overall profit down but on one off costs. Like these figures and looks like a continuation of growth."A big increase in net debt, materially more than can be explained by acquisition spend... and then you have, once again, pretty paltry free cash flow generation (on a true cash basis, rather their own "adjusted" definition). Better than the previous year (when FCF was negative), but still very underwhelming - with FCF dividend cover down at 0.4x.This was be my biggest caveat here... otherwise, underlying growth is okay, but pretty pedestrian. Not sure why the market is so impressed, perhaps expectations had been suitably beaten down?The shares are not expensive relative to peers, perhaps, but hardly cheap relative to alternative equivalent stock opportunities across the UK market.
