Broker snap: OFT decision on Britvic-AG Barr merger 'bewildering', says Panmure



LONDON (ShareCast) - Panmure Gordon has retained its 'hold' rating and 380p target price for soft drinks group Britvic (Other OTC: BTVCF - news) after Wednesday's announcement that the Office for Fair Trading (OFT) has referred the firm's proposed merger with AG Barr to the Competition Commission.

The rationale behind OFT's move is said to be on concerns of a potential loss of competition for brands such as IRN-BRU and Orangina.

Panmure said: "This decision seems bewildering given the relatively small share each of these brands has of the £9bn GB soft drinks market and the fact that Coca Cola (NYSE: KO - news) and Private label combined account for c.50% of the GB Take Home market."

Britvic also announced that its anticipated EBIT (earnings before interest and tax) range for the current year ending September 2013 is £125-131m.

Panmure, which was current at the top of that range (expected EBIT of £130m), has now cut its forecast to £127.2m to reflect the challenging trading environments in Britain, France and Ireland (OTC BB: IRLD - news) . The earnings per share estimate has been reduced from 31.42p to 30.85p.

Following yesterday's 9.0% share-price drop, the broker said that Britvic's shares are trading at 13 times earnings, a 29% price-to-earnings ratio discount.

"We believe that there remains a substantial appetite amongst both boards to complete this merger and we are of the opinion that should the terms of the merger be renegotiated Britvic are likely to be in a stronger position.

"However we await the full details of the OFT's decision before re-considering our recommendation on the shares."

Shares were down 7.36% at 389p.1p by 09:59 on Thursday.