Comment - Is AG Barr On Somebody's Shopping List?
AG Barr shares slid in London trading yesterday
Rubicon certainly put a rocket under AG Barr in the first half of the year as the soft drinks maker booked a 19% rise in pre-tax profits.
But, while profits for the firm best known for its Irn-Bru and Tizer brands fizzed yesterday (28 September), the shares sadly lost theirs, as investors cashed in on recent gains.
AG Barr shares, which stood at GBP9.00 at the start of January, slid 0.32% in London trading yesterday, resting at GBP12.55 at 9.50am BST.
Nonetheless, the Scottish firm earned GBP16m (US$25m), boosted by strong demand for its core brands. Rubicon in particular was the star performer for the business, which grew like-for-like sales by 37%, thanks in part to a GBP5m cricket sponsorship deal with broadcaster Sky over the summer.
Improved distribution and investment in marketing meant AG Barr was well-positioned to take advantage of the early-summer heat.
"The soft drinks market gained momentum during the period benefiting from good weather in the early summer months of May, June and into early July," the firm said.
Indeed, sales grew at twice the 7% value rate seen across the UK soft drinks market for the period.
Within this, CSDs increased volumes by 2% and still drinks by 4%, AG Barr noted.
No doubt, the firm has left itself open as a prime target for M&A activity. Analysts certainly seem to think so. M&A in the food and beverage sector has been active this year, and industry watchers believe AG Barr could be a tasty morsel for the likes of PepsiCo or The Coca-Cola Co to snap up.
Collins Sarri Statham analyst Ravi Lockyer told the Guardian that the firm performed well despite challenges within the company. "Impressively, the strong financial performance was achieved against a backdrop of significant operational change within the group, which meant it incurred double running costs of around GBP500,000 as it switched to a new third party distributor," Lockyer said.
"However, chief executive Roger White said that these costs would end this year, and expects annualised efficiency savings of GBP1m to kick in when manufacturing is consolidated at a single site in early 2011," he added.
But whatever lies ahead for the soft drinks maker, AG Barr needs to concentrate on building its business and in the non carbonated/healthy category in particular if it wants to stay ahead, Lockyer believes.
"This would not put off a Coca-Cola or Pepsi approach," he added. "Any approach would send the stock north of GBP15 in our opinion."
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