Barr (A.G.) (BAG) Ordinary 4 1/6 pence
HL comment (30 March 2021)
AG Barr's full year revenue fell 11.2% to £227.0m and profit before tax and exceptional items fell 12.3% to £32.8m. After £6.8m in net exceptional charges profit before tax was £26.0m, down 30.5%.
The group intends to resume dividend payments this year in accordance with a new policy. AG Barr will aim to pay a dividend equal to half of free cash flow and net profit.
AG Barr shares fell 0.9% in early trading.
AG Barr's exposure to 'on-the-go' and hospitality sectors has made lockdown hard.
Profits were not just hit by lower sales, but also by a big write down in the value of the group's water brand Strathmore - beloved of hotels and pubs nationwide. The recovery will be slow, with Strathmore sales unlikely to return to pre-covid levels in the foreseeable future. Fortunately, impairments are a non-cash item, so don't cost the group cash here and now. Cash generation remained pretty strong in the first six months of the year as a result, and has stayed in positive territory in the second half too.
It's helped that the group has leant heavily on suppliers and customers to help it keep cash in the business. While delaying payments to suppliers and hassling customers for cash might not be sustainable in the long term - it does mean AG Barr's been able to substantially increase its cash on hand at a time of crisis.
A strengthened balance sheet position, together with brands that we think have long term futures mean AG Barr is relatively well placed. While the group will struggle along with the rest of the economy if the UK slides into a sustained recession, sales won't evaporate overnight, and it's got the financial firepower to weather the storm.
There are some headwinds outside the group's control though.
Pepsico's decision to buy Rockstar Energy Beverages last March. AG Barr was Rockstar's exclusive distributor in the UK, Ireland and some European territories, but Pepsi has decided to cancel AG Barr's contract early. The group has received a compensation payment, but Rockstar made up 8% of sales last year and that's a big slug of revenue to replace.
Overall, a sticky customer base and net cash position should make AG Barr relatively defensive over the long-term. Keep in mind though, that strength is reflected in a share price valuation that's slightly ahead of the longer run average. With growth a challenge and the dividend still in limbo, we struggle to get excited about the near term.
AG Barr key facts
- Price/Earnings ratio: 21.0
- 10 year average Price/Earnings ratio: 19.7
- Prospective dividend yield (next 12 months): 2.6%
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.
Full year results
Group Carbonate sales, which account for around 81% of revenue and 87% of gross profit, fell 6.2% to £184.3m. Management attributed this to Covid disruption and the loss of the Rockstar Energy distribution contract, which previously contributed 8% of group sales.
The IRN-BRU brand reported a 9.7% fall in net revenue despite growth from the newer sub-brands - IRN-BRU Energy and IRN-BRU XTRA. Carbonated Rubicon drinks were disproportionately impacted by lockdowns, because they rely more on out-of-home consumption. Rubicon Spring revenue fell 8.1%, while Rubicon Sparkling was flat. Barr Flavours grew sales 3.3%.
Stills & Water revenue fell 35.9% to £25.7m, including an 18.2% fall in Rubicon Stills due to disruption during the key Ramadan trading period. Closures in the hospitality sector meant sales were down 80-90% for the Strathmore brand, and the group has shifted to a single shift production schedule to control costs.
Funkin sales fell 11.5% to £17.0m thanks to disruption to away-from-home sales. However, underlying take-home sales benefitted from a home cocktail boom and performed well.
The group recorded net exceptional charges of £6.8m. Charges included a £10.0m reduction in the value of the Strathmore brand and assets, a £1.3m charge at Funkin and a £3.1m charge to restructure parts of the business. These charges were partially offset by a £7.6m compensation payment for the termination of the group's Rockstar deal.
Free cash flow was £43.7m, up from £25.4m thanks to strong working capital management and reduced capital expenditure. As a result of these measures and the dividend suspension, AG Barr ended the year with net cash of £50.0m, up from £10.9m at the end of last year.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. 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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