- Sales, profits and dividend all advance in the first half
- Further margin benefits to come from cost efficiencies
- Scottish firm’s balance sheet remains rock solid
- Shares at a five-year high but remain one third below their all-time peak
“The last decade has thrown a lot at AG Barr, in the form of new regulations on sugar content, Covid-19, carbon dioxide shortages and input cost inflation (and they are all before the usual issues of competition and changing trends in consumers’ tastes), but the Scottish firm’s latest set of first-half results suggest it is coping admirably,” says AJ Bell investment director Russ Mould. “Sales, profits and the dividend are all up and although the share price is not fizzing higher today it already stands at a five-year high, in recognition of how both revenues and net earnings could set new all-time peaks in the next fiscal year, to January 2026, if analysts’ forecasts prove accurate.
Source: LSEG Refinitiv data
“AG Barr continues to adapt to changes in consumer tastes and trends, in terms of both product and its route to market.
“The acquisitions of Rio and oat milk maker MOMA have both broadened its product portfolio, which is still spearheaded by the iconic IRN-BRU fizzy drink and its three other power brands, namely Rubicon, Boost and FUNKIN.
“First-half sales were up 5.2% in total. Soft drinks rose 7%, to suggest that AG Barr is outgrowing its target market, which grew by 2% in the same period, and MOMA grew its sales by 7.7%, although this business represents less than 5% of the group. The one area of softness was FUNKIN, the pre-mixed cocktail business, where sales fell, as consumers cut back on nights out and late-night drinking thanks to the squeeze on their pockets from inflation.
“The first half showing provides a good base for analysts’ forecasts for the whole year, where the consensus is currently for a 5% increase in the top line to a record £421 million, with further progress expected in fiscal 2026.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Fiscal year to January.
“After last year’s dip in profit margins, shareholders will be pleased to see AG Barr delivering on its target of an improvement this year (at least once the £4.4 million of restructuring charges relating to the merger of the Boost brands and a switch from selling directly to using wholesalers in the independent stores channel is excluded).
“In the first half of last year, AG Barr reported an underlying operating margin of 12.5%, on its way to a 12.3% return on sales for the whole of fiscal 2024, and the company reported a 13% return on sale in the first half of this year.
“Again, that seems to validate analysts’ forecasts for an operating profit of £55.5 million and a margin of 13.2% for the whole year. Although that is still some way below the pre-Covid peak of 17.1% reached in 2018 it should mean that operating profit continues to grow, with the prospect of further momentum in 2026 as cost efficiencies are realised from the integration of Boost and the sales channel switch.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Fiscal year to January.
“Meanwhile, a solid balance sheet continues to buttress the business and give it time to invest in, and protect, its competitive position in the face of multiple challenges.
“Attention will then switch to the balance sheet. AG Barr had a net cash pile of £48.2 million, including a pension surplus and its modest lease liabilities of £4.3 million and little debt.
“This strong position, plus free cash flow, also helps to fund the company’s dividend which is growing once more.
“After a hiatus during Covid-19, AG Barr is firmly back on the dividend growth trail. New chief executive officer Euan Sutherland and the board sanctioned a 17% increase in the interim dividend and further full-year increases to 16.3p and then 18.4p a share, for prospective yields of 2.5% for fiscal 2025 and 2.8% for fiscal 2026.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Fiscal year to January.
“That may not catch the eye of income-seekers but over the past decade AG Barr has still paid out almost 105p a share in dividends, despite Covid-19 and lockdowns, and the next two years alone offer the prospect of nearly 35p a share in additional payments. The Cumbernauld-based concern may therefore merit further patient support from investors, even if the shares do not look like an outright bargain on 19 times earnings for fiscal 2025, although 15 times for 2026 looks more enticing, if analysts’ profit forecasts prove accurate, given the earnings momentum, margin profile, cash flow and rock-solid balance sheet.
“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 cash flow 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 Mr 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).”
