Small-Cap Update: One Fizzing Up and Running Out Of Gas

AG Barr – IRN BRU Gives It Continued Strength In Sales And Profits

The Trading Update for the 52 weeks to 29 January 2023, shows that the IRN-BRU maker reported a 17% growth in group revenue to £315m (£268.8m).

The company, which is a leading UK branded consumer goods business and has a clear multi beverage focus, was helped by an 8-week contribution from its recently acquired Boost brand, together with the benefits of a full year from MOMA.

Based in Cumbernauld and capitalised at £587m, the A.G. Barr (LON:BAG) group manufactures, distributes, and sells some of the UK’s leading soft drinks and cocktail solutions .

The company, which was founded in 1875, provides carbonated and flavoured soft drinks, fruit cocktails, fruit juices, spring and sparkling water, fruit puree, energy drinks, iced tea, and other non-alcoholic beverages.

The company sells its products under the Barr flavours, Boost, Bundaberg, D’N’B, Funkin, IRN-BRU, KA, OMJ!, Rubicon, San Benedetto, Simply, Snapple, Strathmore, Sun Exotic, Rubicon RAW, Xyber, and Tizer brands.

It also distributes and sells MOMA plant-based milks and porridge.

Roger White, Chief Executive, commented:

“Thanks to the contribution from all our teams, we have performed strongly across the year. This positive performance has been supported by continued brand investment and great sales execution. 

We have accelerated the development of the business, further building our portfolio of differentiated brands with the acquisition of Boost and taking full ownership of MOMA. 

As we enter a new financial year we are well placed to continue to develop and grow through our clear and consistent value-driven strategy.”

Broker’s View – Still Growing Sales And Profits

Analysts Darren Shirley and Clive Black at Shore Capital consider that the group has a high-quality stable of UK brands, delivering attractive mid-teen margins, sustained cash generation together with a strong balance sheet.

Their estimates for the year to end January 2023 are for £307m (£269m) revenues, with adjusted pre-tax profits of £42.6m (£41.5m) generating earnings of 30.4p (29.3p) per share. The dividend for 2023 could be 13.0p (12.0p before 10p special) per share.

Going forward into the coming year the analysts suggest sales could lift to £385m, with £45.1m profits, earnings of 32.2p and a 14.0p dividend per share.

My View – Great Medium-Term Value

This leading drinks group, whose brands are seen in practically every food store in the UK, operates on an excellent asset-light business model, contracting out nearly all of its processes.

It owns and markets some of the top brands in its markets, while the group has shown a strong long-term financial performance.

Its shares, which touched 595p in April last year, reacted well to yesterday’s Trading Update news, jumping 24p to 551p, at which price level they reflect the group’s premier position, its senior status and prospects.

(Profile 31.07.20 @ 444.5p set a Target Price of 525p*)

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RBG Holdings (LON:RBGP) – Nicola Foulston Kicked Out, Shares Down 20% At One Stage

Well, that really was a bit of a surprise yesterday!

The legal and professional services group announced its Pre-Close Trading Update for the year to end December 2022.

It also announced that:

“The group’s Board had lost confidence in its Chief Executive, Nicola Foulston, as a result of cultural concerns and the execution of the group’s strategy; her employment contract has been terminated with immediate effect.”

It is harsh out there in the business world – one has to assume that Nicola rubbed a few people up the wrong way with her management style.

The hassles with the ongoing funding commitments for the LionFish litigation finance subsidiary did not help Board sentiment.

The group’s shares fell to 55p in reaction to the news, off 20% on the overnight price.

The company stated that unaudited FY22 revenue, adjusted EBITDA and adjusted operating profit are expected to be in line with consensus market expectations.

The group’s balance sheet remains strong and the company continues to trade within its facility agreements.

Director Marianne Ismail stated that:

“As previously announced, our decision to refocus on our core legal and professional services businesses will ensure we can build on our strong position in this sector.

We are working to reduce our exposure to the ongoing funding commitments of LionFish in a way that benefits shareholders and this will free up capital and management resource to focus on the significant opportunities we see to grow our core businesses.

We are looking forward to the next 12 months with renewed optimism.”

Broker’s View – No Changes To Forecasts And Reiterate Buy Rating

Analyst Jens Ehrenberg, at the group’s NOMAD and Broker Singer Capital Markets, stated very clearly that on the back of this news, he was making no changes to his forecast, given the in-line nature of the update, and reiterated his Buy rating on the group’s shares.

He retains his 105p Target Price.

His estimates for the year to end December 2022 revenues are for £49.5m (£47.2m) and adjusted pre-tax profits of £6.9m (£10.7m), earnings of 5.8p (8.9p), with a reduced dividend of 3.0p (5.0p) per share.

The reduction in profits was after the LionFish hit.

However, for the current year now underway he has estimates out for £52.0m revenues, a bounce back to £10.1m profits, 7.9p earnings and a 4.50p dividend per share.

My View – Disappointment

Unfortunately, that is the way the cookie crumbles – one day you are a forceful CEO, the next day your colleagues kick you out.

‘The group was ticking before you joined it and will continue to do so after your departure’ – perhaps that is the attitude.

The big question is what will happen to her shareholding now?

She was recently a sizeable buyer of stock, with her holding up to 11,900,264 shares, representing 12.45% of the group’s equity.

I would guess that the group’s broker will need to handle a chunky placing out of her stock – as and when she is no longer ‘an insider’ and when such a transaction can be handled within the market rules.

On the other hand, she may well decide to hold her hand for quite a while longer, allowing the group to recover in revenues, profits and share price.

My guess is on the latter.

The shares at last night’s closing price of 58p off some 8p on the day, can only be considered a gamble at these levels until there is more known and that the corporate waters are calmer.

(Profile 05.02.21 @ 80p set a Target Price of 100p*)

(Profile 17.10.22 @ 88.5p set a Target Price of 120p)

(Asterisk * denote that Target Prices have been achieved since Profile publication)