Britvic and AG Barr post strong results - separately

By Mike Stones

- Last updated on GMT

Related tags Ag barr A.g. barr

Britvic and AG Barr both posted encouraging financial results today after merger talks collapsed earlier this month
Britvic and AG Barr both posted encouraging financial results today after merger talks collapsed earlier this month
Former prospective merger partners Britvic and AG Barr have both posted encouraging financial results yesterday (July 25), but City analysts offered conflicting advice on their stocks.

Panmure Gordon repeated its ‘buy’ advice on Britvic stock after the Fruit Shoot manufacturer posted third-quarter revenues up by 5.4% to £316M.

Damian McNeela, Panmure Gordon analyst, predicted that pricing will remain robust and volumes should be boosted by the recent hot weather. The analyst raised its forecast for earnings before interest, tax and amortisation (EBITA) by £2M to £132M.

But Investec analyst Nicola Mallard gave a ‘hold’ recommendation on Britvic stock, after noting that group volumes were down 1.5% in the third quarter and 3.3% down year-to-date.

“Britvic has issued its third-quarter trading update, which shows a constant currency revenue uplift of 4%, or 5.4% on actual revenue,”​ said Mallard. “As in the second quarter, this sales uplift is delivered purely on price, with average retail price up by 6.2% and volumes down by 1.5% as it focuses efforts on driving value rather than volume growth.”

Investec maintained its forecast for earnings before interest and tax (EBIT) at £130M, with profits before tax at £102.5M.

‘Challenging consumer environment’

Britvic chief executive Simon Litherland said that the third quarter remained a challenging consumer environment. “These results combined with strong sales in the early weeks of quarter-four, reinforce our confidence that we will deliver EBIT for the full year at the upper end of our guidance range of £125–£131M,”​ he said.

Meanwhile, Panmure Gordon retained its ‘hold’ advice on AG Barr’s stock, praising the “strong close”​ to the first half of its 2014 financial year.

Its pre-close trading update revealed sales were 4.9% higher at £127.5M, benefitting from promotional activity in June and the recent good weather. Second-quarter sales were particularly strong – up by 9.8%.

AG Barr’s new Milton Keynes factory was now fully operational, with the first saleable can rolling off the production line earlier this month. “We believe that this is positive news and should ease internal capacity constraints and generate cost savings that can be recycled into investing behind its brands,”​ said McNeela. He predicted the firm would focus on Rubicon and on Irn Bru in England.

AG Barr was “a well-run company, with a strong balance and is delivering against its organic growth strategy”, ​which was already reflected in its share value.

Investec retained its ‘add’ recommendation on the firm’s stock, highlighting its good revenue performance in the first half against a very difficult market.

Milton Keynes now operational

“The group is proceeding with its strategy independently and, with Milton Keynes now operational, it now has more flexible capacity to capitalise on growth opportunities,”​ said Mallard.

The analyst forecast first-half EBIT growth to be in the 5–10% range, at about £16.5M. Half-year net debt will be about £20M, but will reduce by year end, leaving the group in “a strong financial position​”, added Mallard.

Shore Capital concluded AG Barr’s statement contained no surprises. It analyst Phil Carroll noted reports that progress at Milton Keynes was ahead of schedule was evidence of the firm’s “under-promise and over-deliver approach”.

AG Barr’s earnings potential should be upgraded if the good weather continues, said Carroll.

He also saw potential for further merger and acquisition activity, with the auction for Ribena and Lucozade is to be held in the autumn. AG Barr could look attractive to a suitor such as Suntory or the firm may try to acquire Ribena and Lucozade​ with the help of a private equity partner.

Shore Capital retained its ‘hold’ advice on the firm’s stock.

Earlier this month, in a move widely predicted​ by analysts, merger talks between Britvic and AG Barr collapsed​, after Britvic rejected revised terms from the Irn Bru maker. Britvic chairman Gerald Corbett had said: “Britvic’s prospects as a stand-alone company are bright.”

 

What the anaylsts advise

Britvic

  • Panmure Gordon – ‘buy’
  • Investec – ‘hold’

AG Barr

  • Panmure Gordon – ‘hold’
  • Investec – ‘add’
  • Shore Capital – 'hold'

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