Comment - Do Strong FY Results Mean M&A Opportunities For AG Barr?
AG Barr has lowered its net debt position by 24.9% on the prior year to GBP16.6m in 2010
With full-year profits and sales up strongly, AG Barr could be well-poised to make strategic acquisitions this year.
For the 12 months to the end of January, profits before tax amounted to GBP31.6m, (US$50.5m), a 13.3% increase on the prior year. Operating profits climbed by 19.8% to GBP31.5m, while sales in the period grew by 10.4% to GBP222.4m, compared to a 7% rise in the UK soft drinks market.
AG Barr's shares fizzed up by GBP0.33 to GBP11.88 following the release of the figures.
Away from the headline numbers, one key figure was the Irn-Bru maker's reduction in debt. In 2010, the firm lowered its net debt position by 24.9% on the prior year to GBP16.6m, providing what the company said is a "platform for future investment".
"One of the highlights this morning was that debt fell stronger than anticipated, it was a couple of million pounds lower than they were looking for," said Altium Securities' analyst Greg Feehely. "If they continue on at this rate, within two years they'll have no debt whatsoever," he told just-drinks.
Feehely believes this opens up opportunities for AG Barr to add some bolt-on acquisitions to its portfolio.
"They've certainly got the balance sheet and strength to do so," he said. "They've got a GBP40m acquisition facility which is totally undrawn. They could easily make an acquisition without having to approach the banks or raid any equity. Should a small acquisition come along, it would be very well received, no doubt."
The last acquisition for AG Barr was Rubicon in August 2008. Since the purchase, AG Barr has managed to almost double sales of the brand, proving that it has the skills to build brands alongside its flagship Irn-Bru.
The problem could be finding something to buy. There may not be another acquisition opportunity as attractive as Rubicon in the near-term, particularly given that Barr had a 20-year relationship with the firm before purchasing it.
AG Barr is also pretty well represented across all categories. It has a strong presence in carbonates and dilutables, as well as a foot in the juice and energy sectors, so it may not want to look elsewhere just yet.
Brands include Orangina, Rockstar, St Clements, Strathmore, Tizer and the newly-launched KA juice range.
However, if the firm were to begin looking, Shore Capital analyst Phil Carroll believes that the only area where Barr falls short of its UK rivals, Britvic and Nichols, is in its lack of overseas presence.
"[Acquisitions] are more likely for someone like Nichols rather than Barr but you can never rule it out," Carroll told just-drinks. "The only place where [AG Barr] lacks, I suppose if you compare it to Britvic and Nichols, is the overseas side, but that is just a preference."
With a GBP40m warchest, AG Barr is certainly in a better position than most to make a couple of purchases. Whether it decides to leverage these opportunities through driving growth in its existing business or through overseas expansion, we will have to wait and see.
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