Here is Vetiva’s analysis of 7-Up Bottling Company’s Q2 2009 results:

EARNINGS AND PROFITABILITY UPDATE
The Company’s profitability margins declined marginally to 5.62% (PBT) and 4.78% (PAT), from 6.44% and 5.26% respectively as at FY’08/9. Up is currently trading at a PE multiple of 9.52x and a forward P/E multiple of 6.47x, relative to a sector and market average of 9.62x and 14.23x respectively.

FORECAST
Our FY’09/10 forecast for Turnover and PAT stands at N37.65 billion and N1.74 billion respectively. We expect FY’09 EPS to stand at N3.40, with a Dividend Per Share of N1.56.

RECOMMENDATION
We retain our “Neutral” rating on the stock and recommend a “Hold” at its current market price.

OUTLOOK
Over the years, 7-Up has been gradually gaining market share, more recently (slightly aided) by the introduction of its premium bottled drinking water brand “Aquafina”, which was met with positive consumer demand. However, in terms of the level of advertisement and investments in distribution network structures, as is key for its industry, the Company remains a laggard relative to its peers. We opine that the company will need to implement strategies to make for an optimal distribution system to aid its market penetra tion.

Further to our discussions with respect to the Company’s distribution system, there are some products, such as the variants of Mirinda (Mirinda Apple and Mirinda Tango) and Seven-Up Free (its Diet variant), which are only available to a very small segment of the market and not well known by a larger segment of the market. ‘Teem’, its bitter lemon soft drink, was only recently introduced to the Lagos market. The Company’s relatively passive response in addressing issues of distribution may negatively impact its financial performance going forward, especially as its peers are noted to be more aggressive in this regard.