AG Barr shares lost ground this week despite the Irn-Bru supplier reporting a strong set of first-half results in a challenging soft drinks market.
Sales, profits and dividends were all on the march, with the only dark spot being a 9% decline for the Funkin cocktail brand, which was caught up in the difficulties facing the on-trade as consumers shunned late-night venues.
The Scottish group enjoyed a 5.2% boost in revenues to £221.3m in the 26 weeks to 27 July as Irn-Bru made gains on both sides of the border thanks to a well-received marketing campaign during the summer Euro 2024 football tournament, while “stand-out performer” Rubicon registered double-digit growth.
The two brands helped the soft drinks part of the business increase sales by 7%, far outperforming the wider market, which grew by just 2%.
Adjusted pre-tax profits jumped 8.5% to £29.3m, but one-off costs of £4.4m related to the closure of Barr Direct and the integration of Boost, which AG Barr acquired in 2022, led to the bottom line falling 10.4% to £24.9m.
CEO Euan Sutherland, who took over from the retiring Roger White in May, said his first few months with AG Barr had further cemented his view that it was “an excellent business with exciting, tangible and deliverable growth opportunities”.
However, the stock sank 8.5% to 606p on Tuesday following the news.
Already trading at five-year high – and up 23% in the year to date – it may be that investors decided now was a good time to cash in a profit.
AJ Bell investment director Russ Mould pointed out that the past decade had thrown a lot at AG Barr in the form of new regulations on sugar content, Covid, carbon dioxide shortages and input cost inflation, as well as the usual stiff soft drink competition and changing consumer tastes.
“But the Scottish firm’s latest set of first-half results suggest it is coping admirably,” he said.
Mould added: “It is also worth bearing in mind that AG Barr’s shares still trade more than 30% below their all-time high of summer 2019, when the stock traded on 30 times earnings. That rating will have been influenced by the zero interest policies that prevailed at the time, and the scramble for reliable earnings and cashflow streams that such policies provoked, wittingly or otherwise. As it turned out, investors mistook reliability for safety and by paying such a fat price they managed to render even a ‘safe’ stock dangerous, especially as unexpected events came out of the clouds to question even AG Barr’s reliability credentials.
“Former boss Roger White and the board have done much to help the company navigate a particularly difficult time and if Euan Sutherland can build on that foundation and show that AG Barr can still generate consistent profit and dividend growth then the stock could re-rate, even if arguing for a 30-times multiple feels like a bit of a stretch (at least unless interest rates go back to zero).”
Darren Shirley of house broker Shore Capital praised AG Barr as a business of “well-established quality, built on the foundations and heritage of a core stable of soft drinks brands that we believe carry significant value in the UK soft drinks market”.
“We see AG Barr as an attractive, and increasingly rare opportunity to access the UK soft drinks market and long-term growth potential within,” he said. “We again urge investors to take a much closer look.”
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