AG Barr: Fizzing Away
Edison Group | Mar 28, 2024 06:59
Despite a challenging backdrop of falling volumes in the UK soft drinks category, BAG delivered revenue growth of 25.9% (including the Boost Drinks acquisition) to £400.0m (FY23: £317.6m), with like-for-like revenue growth of 8.0%. The core soft drinks segment outperformed the wider market, delivering volume growth of 3%, which helped to boost revenue by 30% alongside a full-year contribution from Boost. Margins fell predominantly due to the integration of the lower margin Boost and MOMA acquisitions. However, adjusted EBIT margins of 12.3% (FY23: 13.6%) were better than previously expected following an acceleration of production in-sourcing for the Boost business. Free cash generation remained strong in the year, funding the acquisition of Rio Tropical for £12.3m in October 2023 and enabling a 14.9% growth in the total dividend to 15.05p (FY23: 13.10p).
h2 Rebuilding the margin/h2Following the investment phase of its margin improvement strategy out to FY26, BAG is now in the rebuild phase post-FY24. Earlier in March, BAG announced it would revisit its route to market for the independent retail channel, moving from direct to store delivery to delivery through existing wholesale partners, alongside a larger field sales team. Management also announced it would fully integrate Boost into Barr Soft Drinks, resulting in a reduction in duplication and efficiency gains. These efficiency gains are expected to aid in achieving an improvement in the operating margin to 13.3% in FY25 and to a further 14.5% in FY26.
h2 Valuation: Discount to peer multiples/h2On consensus FY25 multiples of 8.7x EV/EBITDA and 15.1x P/E, BAG trades on discounts to its UK peer group median of 8% and 6%, respectively, annualised to the company’s January year-end. However, the company trades at a 18% premium to close peer Britvic (LON:BVIC) on FY25 P/E, likely reflecting the better profit growth expectations, owned brand portfolio and the net cash position of £53.6m.
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