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A succession of trading pressures have not made life easy for Irn-Bru maker AG Barr which, nonetheless, has managed to grind out a steady rise in profits and is back on the dividend growth trail.
First half results on Tuesday will provide an opening gambit for new chief executive Euan Sutherland who succeeded long-serving Roger White in the summer.
Analysts may be frustrated that the shares trade no higher than they did ten years ago, thanks to a series of challenges including regulation on sugar content, Covid-19 and lockdowns, carbon dioxide shortages and input cost inflation.
The uncertainty over Scotland’s proposed deposit return scheme, which was dropped, added to pressures on the balance sheet with the Cumbernauld-based company being forced to take a big hit from preparation costs.
AJ Bell analysts note that the firm is also having to adapt to changes in consumer tastes and trends.
Since the end of lockdowns, mixers, juices and lemonade have declined in volume and value, to reflect the normalisation of home consumption, while trade volumes in bars, restaurants and hospitality venues have recovered steadily and sports and energy drinks have shown robust growth. AG Barr’s acquisitions of Boost and oat milk maker MOMA are both designed to broaden its product portfolio.
“For all of that, the shares trade at a five-year high, after a steady recovery from the Covid-inspired lows, and late July’s trading update was very solid,” said AJ Bell in a pre-results statement.
In a trading update, Mr Sutherland flagged first-half sales growth of 5%, with soft drinks up 7%. Analysts will look for further detail on growth across product segments, and especially the four power brands of Irn-Bru, Rubicon, Boost and Funkin, and also the mix between volume and price. The base for comparison is last year’s first-half revenue of £210m and for the whole year analysts expect a 5% increase in statutory sales to £421m.
After last year’s dip in profit margins, AG Barr has targeted an improvement this year, especially for the second half, thanks to a number of initiatives, including a switch to wholesale from direct sales for independent retailers, the merger of the Boost brands into Barr Soft Drinks and work on the overall supply chain, with a focus on insourcing and capacity growth.
As of January 2024, AG Barr had a net cash pile of £53.6m, a pension surplus, virtually no debt and modest lease liabilities of £5m. This strong position, plus free cash flow, helps to fund the company’s dividend.
After a hiatus during Covid-19, the company is back on the dividend growth trail. In the year to January 2024, the company paid out 15.05p a share. Analysts are looking for a figure of 16.43p a share this time, so an increase on last year’s first-half payment of 2.65p a share is likely.
A big milestone in Royal Mail‘s history will be reached on Wednesday when investors in its owner, International Distributions Services, vote on a proposed £3.57bn takeover bid by Czech billionaire Daniel Kretinsky’s EP Group.
Mr Kretinsky already owns 27.6% of the business and is promising to pay 370p per share to investors in IDS, including 360p cash and 10p in dividends.
DIARY
Monday 23 September
Tuesday 24 September
- First-half results from AG Barr, Mitchells & Butlers, Card Factory and Boku
- Final results from Close Brothers, Smiths Group
- Trading statements from TUI and SThree
Wednesday 25 September
- Fintech Summit, Scotland
- Investors in Royal Mail vote on takeover by Daniel Kretinksy
Thursday 26 September
- US GDP growth
- US weekly initial unemployment claims
