The following two soft drinks makers have shownplenty of fizz lately, but afterrecent strong growth is therea danger that anyinvestment could fallflat?
Raising the Barr
A.G. Barr (LSE: BAG), maker of Irn-Bru and Rubicon fizzy drinks, as well asStrathmore water, has been full of life lately, its share price rising 33% in the last six months. Over five years, it is up 86%, an impressive long-term gain that conceals a few bumps along the way.
In September 2015, the Cumbernauld-based firm reported an 11.3% drop in first-half pre-tax profits to 16.9m, while sales fell from 135.7m to 130.3m year-on-year. Management blamed poor weather and tough market conditions, but the outlook is sunnier today.
Full-year profits published in March just showed just how convincingly A.G. Barr has turned things round, postinga 4.4% rise in statutory profit before tax to43.1m, andunderlying revenue up1.5% to 257.1m. The company also reported a robust financial position, with gross margins rising 10 basis points to 46.9%, basic earnings per share (EPS) rising 3.9% to 30.78p and net debt of 11.3m in 2016turning into a net cash position of 9.7m.Investors were rewarded with an 8% hike in the proposed totaldividend for the year to 14.4p, and the yield is now a forecast 2.4%.
The beverage makermay have bridled at the new sugar tax buthas responded well, with a commitment that 90% of its brands will contain less than 5g of total sugars per 100ml by the autumn. This is a mature business rather than a whizzy FTSE 250 flyer, with EPS forecast to stay flat in the year to 31 January 2018, although City forecasters reckon they will rise 6% the year after. Revenues and profits look set for steady growth, but trading at 21.7 times earnings youmay find bubblier growth plays elsewhere on the index.
So to another fizzy drinks maker, Britvic (LSE: BVIC), which stylesitself Britains greatest soft drinks company. It certainly has a strong portfolio of brands that includes Robinsons, Tango, J2O and Ballygowan. It also produces and sells Pepsi, 7UP, SoBe and Mountain Dew in the UK and Ireland, under exclusive agreements with PepsiCo, and has shown plenty of bottle in France, and increasingly the US and India.
Over the past five years Britvicsshare price is up a thumping 108%and it is currently enjoying another growth spurt, with the stock up 30% in the last six months. So areinvestorsglasses half full, or close to overflowing? Last weeks interims revealed a strong first-half performance, with revenue up11.5% to 756.3m and pre-exceptional EBITA increasing 6.7% to 73.6m. Profit after tax did fall4.9% to 38.6m but this was mostly downto the 5.8m impact of exceptional and other items. The interim dividend was hiked 2.9% to 7.2p per share.
Shoot the fruit
Company revenues are growing strongly whilemanagement simultaneously tackles costs, with expected savings of 5m in 2017. My one concern is that Britvics results do not quite justify recentspectacular share price growth, somomentum could slow. However, tradingat 14.5 times earnings, the valuation looks sweet.
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