Do Budget Changes Make Premier Oil PLC, Nichols plc and Britvic Plc A Buy?

Will oil tax cuts and a sugar levy have any effect on the outlook for Premier Oil PLC (LON:PMO), Nichols plc (LON:NICL) and Britvic Plc (LON:BVIC)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today’s Budget has triggered sharp moves in the price of a number of popular UK shares. In this article, I’ll take a look at three of the biggest movers and ask whether the changes announced in the Budget will have an effect on future profits.

A sweet surprise

The biggest surprise in the 2016 Budget was probably the Chancellor’s decision to introduce a sugar tax.

Shares in manufacturers of sugary drinks quickly slid lower, but do investors need to be concerned? Chancellor Osborne is planning a two-tier levy on sugary drinks, with rates for drinks with over 5g of sugar per 100ml and drinks with more than 8g per 100ml.

Mr Osborne aims to raise £520m from the new levy, but it won’t come into force for another two years. This delay didn’t stop shares in soft drinks firms such as Nichols (LSE: NICL) and Britvic (LSE: BVIC) falling sharply, but do investors need to be concerned?

I’ve taken a quick look at the sugar content of a number of popular soft drinks made by Britvic and Nichols. It’s clear that both companies have a number of products which may be affected by the levy. However, both firms also offer no-added sugar versions of their most popular products. In addition to this, many of the more sugary drinks have sugar contents that are only slightly higher than 8g/100ml.

What I suspect will happen over the next two years is that high sugar drinks will be reformulated to reduce sugar content to less than 8g/100ml. Other drinks may be phased out completely, or converted into sub-5g/100ml drinks. The firms may also lift prices slightly to offset the sugar tax.

My view is that this new tax is only likely to have a marginal effect on profits, if any at all. I wouldn’t buy or sell shares in Britvic and Nichols based on today’s news.

Oil tax cut

Another big story for UK investors was the Chancellor’s decision to cut the tax on oil and gas production.

One of the biggest stock market movers following this news was Premier Oil (LSE: PMO), whose shares rose by 10%.

The Chancellor abolished the Petroleum Revenue Tax and announced plans to cut the supplementary charge on oil and gas from 20% to 10%. On the face of it, it looks like good news for firms such as Premier Oil, which produce a substantial amount of oil in the North Sea.

The only problem is that Premier already has $3.5bn of UK tax losses which it can offset against future North Sea production. Today’s tax cuts will reduce the value of these losses a little, but that’s all.

A more serious concern for shareholders in Premier Oil is the firm’s $2.2bn net debt. Tony Durrant, Premier’s chief executive, warned investors in the firm’s latest results that further relaxation of covenants may be required” if oil prices do not start to recover.

If this happens, Premier’s lenders may force the firm to raise some cash by issuing new shares. That would almost certainly mean heavy dilution for existing shareholders. These debt risks mean that Premier remains a stock to avoid, in my view.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Britvic. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Can Rolls-Royce shares keep on soaring in 2025?

2024 so far has been another blockbuster year for Rolls-Royce shares. Our writer thinks the share could still move higher.…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Here’s the worst thing to do in a stock market crash (it isn’t selling)

When the stock market falls sharply – as it does from time to time – selling is often a bad…

Read more »

New year resolutions 2025 on desk. 2025 resolutions list with notebook, coffee cup on table.
Investing Articles

My top 2 growth shares to consider buying in 2025

For investors looking for top growth shares to buy in the New Year, I reckon this pair are well worth…

Read more »

Investing Articles

3 massive UK shares that could relocate their listing in 2025

I've identified three UK companies that may consider moving their share listing abroad next year. What does this mean for…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

2 common mistakes investors make with dividend shares

Stephen Wright outlines two common mistakes to avoid when considering dividend shares. One is about building wealth, the other is…

Read more »

Investing Articles

Here’s how I’ll learn from Warren Buffett to try to boost my 2025 investment returns

Thinking about Warren Buffett helps reassure me about my long-term investing approach. But I definitely need to learn some more.

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Here are the best (and worst) S&P 500 sectors of 2024

While the S&P 500 has done well as a whole, some sectors have fared better than others. Stephen Wright is…

Read more »

Investing Articles

2 FTSE 100 stocks I think could be takeover targets in 2025

If the UK stock market gets moving in 2025, I wonder if the FTSE 100 might offer a few tasty…

Read more »