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A.G. BARR - sales jump as key brands perform strongly

A.G. BARR announced in a full-year trading update that revenues jumped roughly 15% ...

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AG Barr announced in a full-year trading update that revenues jumped roughly 15% on a like-for-like basis, with total sales for the year reaching about £315m. This reflected positive sales momentum throughout the year.

The newly acquired Boost and MOMA businesses are expected to provide further room for growth as they develop both their consumer base and customer distribution.

The group is expecting to deliver a full-year profit performance slightly ahead of current market expectations, with many analysts anticipating pre-tax profits of around £42m.

Looking to next year, despite a backdrop of continued high inflation, the group is anticipating further revenue and profit growth. However, margins are expected to be hit by inflation, as well as the impact of the Boost acquisition.

The shares rose 2.7% following the announcement.

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Our view

The IRN-BRU and Rubicon maker's full-year sales have been impressive, especially given the challenging macro environment this year.

AG Barr's strong brands have helped it capture a good amount of returning sales, and the group's leveraging those brands to spin out new products. The Rubicon name is being put on a new energy drink to sit alongside IRN-BRU energy, which it hopes will help capture more of the growing energy drinks market.

The Funkin brand, which sells a range of pre-made cocktails to bars, restaurants and consumers at home, offers a genuine avenue for growth. Bar and restaurant sales made a strong recovery as restrictions eased last year. And 'at home' cocktail sales continued to grow despite bars reopening. But as demand heats up the growth has presented its own challenges, causing some supply chain issues that'll need to be ironed out.

While the group is anticipating further revenue growth next year, it did issue a few words of caution to flatten expectations. It expects high inflation to continue this year, taking some of the fizz out of profit growth. For now, cost controls and price increases look to be keeping the impact low, but management have already voiced their expectations for margins to fall.

Despite the acquisition of Boost in December 2022, the group stated that its year end cash position is "robust". This will help prop up the 2.8% prospective dividend yield for now, but remember, no dividend is ever guaranteed. We'll be keeping a close eye on the balance sheet as things move forward.

A strong balance sheet means the group has more firepower to pursue further non-organic growth opportunities if they arise. We like Barr's focus on faster growing niche areas of the industry. MOMA, which AG Barr acquired in December 2021, is a producer of oat milk, (a sector growing at over 10% annually) with one in three British consumers now drinking plant-based milk.

Overall, AG Barr's performance this year has impressed us. Its key brands, which are typically at the lower end of the drinks market, have been extremely resilient amidst a period of high inflation. Recent acquisitions also provide a platform for the group to continue growing, although it must be noted, the steep rates of growth seen this year will be difficult to maintain and there are no guarantees. That's likely why the group trades below the long term price-to-earnings ratio.

AG Barr key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.

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Written by
Aarin Chiekrie
Aarin Chiekrie
Equity Analyst

Aarin is a member of the Equity Research team. Alongside our other analysts, he provides regular research and analysis on individual companies and wider sectors. Having a keen interest in global economics, he knows how macro-events can impact individual companies.

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Article history
Published: 31st January 2023