UK: AG Barr must wait for Britvic results to judge merger - analyst
AG Barr is in advanced talks with rival Britvic over a possible merger
While Barr saw net profits fall in H1 results released today (24 September), underlying trends were very strong, according to Canaccord Genuity's Wayne Brown. But, despite the Scottish company's “meaningful” gains, Britvic's full-year numbers, due on 28 November, will have more relevance on a possible merger, Brown told just-drinks.
“I think the big question here is what Britvic's trading is like,” Brown said. “Has Britvic's underlying trading performance improved or softened - I suspect it's likely to be the latter - and if that would have any impact on the ratio of the combined entity and how that would be perceived by AG Barr's shareholders.”
Brown praised Barr's first-half results, particularly in England and Wales, where sales increased by 8% compared to a year prior. Barr's low market share in the regions suggest potential can only mean further gains in the future, he said.
“(Barr's) market share in England and Wales, which is sub-3%, doesn't even scratch the surface,” Brown said. “The opportunity for them across their range of brands is hugely significant and such growth in such challenging times - when the market in a volume perspective has gone back in certain categories - is a huge commendation to the management team.”
Brown also said that Barr has backed its potential with investment in a new production facility in Milton Keynes that will nearly double capacity by 2014.
“I think they are investing in the future and I think they have to invest in the future,” Brown said. “Whether this merger with Britvic happens or not, for AG Barr it's business as usual and they need this additional capacity to make sure that the growth that they are seeing in England and Wales is long-term and sustainable.”
The GBP41.5m (US$66m) facility would also give Britvic “scope for improvement” if the merger goes ahead, Brown added.
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