Shares in soft drink and ready-made cocktail maker AG Barr (BAG) eased 2.5% to 508p after the company posted a fall in revenues and earnings for the year to January and said the immediate outlook remained ‘uncertain’.
However, there was some comfort for investors from the fact the firm stuck to its plan to restart dividends during the current financial year.
SHIFT IN DEMAND
In a challenging year for businesses supplying the general hospitality and on-trade markets, soft drinks benefitted to a degree from the shift from out-of-home consumption to in-home consumption as sales in supermarkets and convenience stores increased.
According to IRI Marketplace, the total UK soft drinks retail market actually grew in value by 1.8% and in volume by 2.4% in the year to end-January. More sales of multipacks accounted for the better volumes.
Sales of carbonates - such as Barr’s iconic IRN-BRU - grew in value by 7.8% while sales of ‘stills’ like bottled water and juice drinks fell 5.1% due to the sharp drop in ‘on-the-go’ consumption during lockdown.
Sales of ready-made cocktails - like the firm’s Funkin brand drinks - were naturally hard-hit by lockdown and the closure of hospitality venues, but on the other hand in-home cocktail consumption rose ‘dramatically’ last year according to consultancy CGA.
DIVIDEND PROMISE
Despite lower sales and earnings last year, the firm continued to invest in its brands and extract further efficiency gains from its operations as it ‘right-sizes’ the business, and by the end of January it had £50 million of net cash at the bank compared with just £10.9 million going into the pandemic.
While admitting the short-term outlook was still far from certain, chief executive Roger White remained upbeat: ‘We closed the year in strong financial health, with our brands and business poised for growth on a like for like basis, and with the clear intention to recommence dividend payments in 2021.’
Liberum analyst Wayne Brown kept his Buy recommendation and 625p price target, observing: ‘The business remained highly cash generative, ending the year with £50m net cash, which should support a return to dividends this financial year. Looking ahead, the first quarter will continue to be impacted by the lockdowns, but as restrictions ease in late spring, the group’s strong brands and flexible operations should allow it to quickly capture any upside.’
