“Even a recovery in sales and profits, a net cash balance sheet and the return of dividend payments are failing to raise a cheer for soft-drink maker AG Barr’s first-half results,” says AJ Bell investment director Russ Mould. “Perhaps investors are more concerned about the prospect of shortages of carbon dioxide and haulage capacity as well as wider input cost pressure, given the clear hint from chief executive Roger White that profit margins may be lower in the second half than the first.
“But if the first-half’s record stated pre-tax profit of £24.4 million benefited to the tune of around £5 million, thanks to restocking by bars and restaurants and the phasing of marketing investment, it might not pay to overdo the gloom. Management still expects operating margins to exceed last year’s 14.8%, on an adjusted basis for the full-year, even if that implies a sharp drop in the second half from the 17.7% reached in the first six months. Much of that comes down to AG Barr’s brands.
“The FTSE 250 firm’s well-nurtured range of brands includes not just IrnBru but Funkin’ and also Rubicon, which is launching a new range of energy drinks to attack that fast-growing market. Those brands, which survived the last carbon dioxide shortage three years ago, as well as the launch of the sugar tax in the same year, bring pricing power.
“That could be a very useful facet if input cost increases prove persistent not least because pricing power helps to generate and defend high profit margins and high returns on capital.
Source: Company accounts. Financial year to January.
“Double-digit profit margins and returns on capital in turn help to support cash flow, which funds further investment in the business and those brands and then finally returns to shareholders, in the form of dividends or even share buybacks.
“The Scottish firm has returned £138.5 million to its shareholders over the last ten years via dividends and today’s offer of both a 2p regular interim dividend and a 10p special payment hints at management’s long-term confidence in the business, even if the first-half dividend is half the level of the last interim payment made two years ago.
Source: Company accounts. Financial year to January.
“AG Barr also ran share buyback programmes in its 2018, 2019 and 2020 financial years with a combined worth £30 million, to take total cash returns over the decade to £168.5 million.
“That is more than a quarter of the company’s current total market capitalisation and patient shareholders may well decide to stick with the shares, as a result, looking through the near-term uncertainties that face the business in the view that its brands will, as before, bring it through.”
