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AG Barr - first-half revenues grow, CEO Roger White to step down

AG Barr's first-half revenue is expected to be around £210m, up roughly 10% on like-for-like basis...

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AG Barr's first-half revenue is expected to be around £210m, up roughly 10% on like-for-like basis, driven by higher prices and volume growth.

First-half margins remained under pressure but in line with Barr's expectations.

The group expects full-year profit performance to be marginally ahead of analyst expectations, with markets expecting operating profit to grow 4.8% to £45.4m.

Chief Executive, Roger White, has also announced that he will retire from the company at a mutually agreed date within the next 12 months. The board will immediately begin the succession process, including an external search.

The shares were up 1.9% following the announcement.

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Our view

After more than 20 years at the helm, CEO Roger White has decided to turn the page on his time at the soft drinks giant. A change at the top is always a leap into the unknown, and the search for his successor is underway.

The IRN-BRU maker released a trading update ahead of its half-year results, and we were pleased to see sales jump higher. Double-digit like-for-like growth is impressive, especially given the challenging macro environment this year.

AG Barr's core brands have continued to perform well, driven by positive price and volume growth. And the group's leveraging those brands to spin out new products. The Rubicon name's been 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. The brand's grown its retail channel thanks to continued consumer marketing and remains the UK's Number 1 cocktail brand. But bar and restaurant sales growth have cooled in the first half as tougher comparative periods roll through following the post-Covid highs.

While the group anticipates continued revenue growth, there have been a few words of caution to flatten expectations. Persistent cost inflation and investment across the businesses is expected to squeeze profit margins this year.

Despite the acquisitions of Boost and MOMA in recent years, the balance sheet was still in great shape last we heard, meaning there's firepower to pursue further non-organic growth opportunities if they arise. A net cash position underpins the group's investment plans to ramp up production and increase efficiencies in these new brands. This should help grow margins over the medium term, but in the short term while this investment is taking place, margins are likely to come under more pressure.

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.

Forfeiting short-term margins and profits this year, to invest in what it sees as high-growth areas is a plan we can get behind. But execution is a key risk, and if the expected benefits are smaller or later than planned, the valuation could be punished.

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: 1st August 2023