Numerous FTSE 250 stocks have proven remarkably resilient in the face of inflation. And some of these shares may continue to be fantastic buying opportunities for the foreseeable future.
After all, despite the Bank of England raising interest rates, the Consumer Price Index continued to climb by 8.7% in May.
With inflation looking like it’s here to stay for a little while longer, adding inflation-resistant stocks to an investment portfolio could be a prudent move. And looking at the UK’s second flagship index, Britvic (LSE:BVIC) might be the perfect candidate. Let’s take a closer look.
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Double-digit growth leads to higher dividends
As a quick reminder, Britvic is a soft drinks company with a vast portfolio of brands including Robinsons, 7Up, Fruit Shoot, and Teisseire. And even with the cost-of-living crisis causing households to be more selective with their shopping, it seems demand for Britvic’s brands remains intact.
Looking at its interim results for the six months leading to April this year, revenue was up 7.9% on a constant currency basis. And this may be just the tip of the iceberg, since management noted an uptick in sales volume within the second quarter, which may continue throughout the year.
Moreover, with the group successfully cutting costs, profit margins have also expanded, paving the way for a 22.3% jump in earnings per share.
Considering Britvic has been contending with significant jumps in input costs, margin expansion is an encouraging sight. And it also highlights that customers are willing to pay a higher price to stock up on Britvic’s brands.
Needless to say, this is positive. And it seems management agrees since it just raised shareholder dividends by another 5.1%. That puts the FTSE 250 stock on track for its third consecutive year of dividend hikes since the pandemic disrupted its last streak of seven years.
Even FTSE 250 stocks have risks
To become a member of the UK’s leading growth index, a company must reach a certain size and state of maturity. However, that doesn’t mean its constituents are free from risk. In fact, it’s quite the opposite.
One area of concern surrounding Britvic is its level of debt. Today, the firm has around £732m of loan and lease liabilities to contend with. That’s the equivalent of 65% of the group’s capital structure.
While the maturity dates of these obligations are spread across the next couple of years, rising interest rates are already starting to cause financing costs to rise, even with the firm deploying risk-hedging strategies.
I don’t think the company is overburdened, given its operating profits are still more than enough to cover debt-servicing costs. But it’s still something to keep a close eye on moving forward.
All things considered, at a P/E ratio of around 15, this FTSE 250 stock looks like a fairly valued business with inflation-busting characteristics. Therefore, despite the risks, I’m tempted to add this company to my income portfolio the next time I invest capital.
