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AG Barr - full year results delayed

Nicholas Hyett, Equity Analyst | 23 March 2020 | A A A
AG Barr - full year results delayed

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Barr (A.G.) Ord 4 1/6 pence

Sell: 488.50 | Buy: 490.00 | Change -6.50 (-1.32%)
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Following instructions from the Financial Conduct Authority, AG Barr is delaying its full year results by at least two weeks.

The group also announced it has introduced several measures to cope with the COVID-19 pandemic, including drawing down its full £60m revolving credit facility.

The shares were broadly flat in early trading.

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Our view

AG Barr hasn't seen too much disruption from the COVID-19 pandemic yet. Management is primarily concerned about the 10% of the business selling through the likes of pubs, restaurants and hotels. Due to government restrictions sales in these locations are likely to be close to nil for the foreseeable future.

AG Barr had been persevering through a tough year already. The group kept prices low following the introduction of the Sugar Tax in 2018, but moving back to a more normal pricing structure has proved painful. Add challenging market conditions and some problems with the Rockstar and Rubicon brands, and it's been a difficult year.

Fortunately the ship appears to have steadied. There are early signs that customers are coming round to the idea of higher prices, with higher margins from those inflated price tags offsetting industry-wide volume declines. That's a big step in the right direction.

The Barr family remain heavily involved in the business too. Collectively, the family control a sizable chunk of the company, while two of the three individuals who know the top secret IRN-BRU recipe bear the Barr name.

The desire to pass the business on to the next generation means the board adopts a sensible and sustainable approach to future growth. That probably goes some way towards explaining the balance sheet's conservative net cash position. That should serve the group well in tough times such as these, though resources aren't infinite.

Overall, we think AG Barr is in a better position than some to weather the storm of the global pandemic. The fact most of the group's business comes from shops means it should be a more defensive option- sales of customers' favourite fizzy drinks should show up come rain or shine. Of course that's provided AG Barr's supply chains remain intact.

However, we can't rule out a longer-term economic slump. Prolonged economic uncertainty or severe recession could weaken even the most defensive business. And we also don't know what a lockdown situation could mean for sales.

Prior to the outbreak the group had an enviable dividend track record, and currently offers a prospective yield of 4.1%. However, management is exercising caution, and has drawn down on available credit facilities in light of the coronavirus pandemic. Dividends are never guaranteed, and the extra uncertainty means management could decide the cash used for shareholder returns would be better used elsewhere.

Prior to the full year trading statement, the shares changed hands for 16 times expected earnings, considerably below the ten year average of 19.6.

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COVID-19 Update

Hospitality, such as restaurants, pubs and hotels, account for about 10% of the AG Barr's business - where the group anticipates significant challenges. It intends to continue supplying all customers for as long as there is demand and government guidance allows.

AG Barr had net cash amounting to £10.9m on the 25 January and has subsequently drawn £60m from its revolving credit facility. The group is freezing all new capital projects and scaling back marketing and commercial activity where management deems it "sensible".

There are some raw materials which it is not possible to hold on-site for more than a few days. However, the group has experienced no difficulties with its supply chains so far.

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Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.