FTSE claws back some ground, AG Barr regains its fizz, and Crest Nicholson outlines recovery plan

“The higher opening for the FTSE 100 may have recovered some of the heavy ground lost yesterday but markets are likely to be in a holding pattern until there is greater clarity on how and when the coronavirus can be contained. “The next move by the World Health Organisation, which is yet to declare the outbreak a public health emergency, will be closely monitored by investors,” says AJ Bell Investment Director Russ Mould.

AG Barr

“Scottish soft drinks firm AG Barr has got some fizz back on today’s bullish trading update, having gone flat in 2019 after a large and uncharacteristic warning on profit.

“The Irn-Bru maker had been a victim of a soggy summer, the sugar tax and shortages of carbon dioxide but also a strategy shift to focus on maintaining prices rather pushing volumes.

“In the long run this may prove to have been a smart move, as too much discounting can damage the integrity of a brand. And while the volume of drinks fell, average prices increased, helping drive today’s guidance for profit to be at the upper end of expectations.

“Encouragingly, the core Irn-Bru brand returned to growth in the fourth quarter amid strong Christmas trading, while recovery plans are being implemented at energy drink Rockstar and exotic drinks brand Rubicon.

“As the company acknowledges, the backdrop remains difficult but it at least benefits from a strong balance sheet, underpinned by robust cash generation, enduring brands, settled management and a best-in-class manufacturing base.

“Plans to introduce a deposit return scheme in Scotland, allowing consumers to return glass and plastic drink containers in return for a nominal sum, could be a complication and added cost for the business going forward.”

Crest Nicholson

“The new chief executive at housebuilder Crest Nicholson, Peter Truscott, faces a pretty steep challenge as he looks to get the company back on course.

“Crest is a high end operator, a large proportion of its new builds are ineligible for Help to Buy support, and it has a strong bias to the south east of England. As such it has been caught out by dwindling demand in this part of the market.

“The company is trying to move towards selling more affordable homes, but this is likely to take time and arguably it doesn’t have the scale or expertise to compete with rivals for whom this part of the market is a more natural fit.

“Today’s full year results at least put some meat on the bones of Truscott’s recovery plan which looks to increase volumes and returns.

“Notably the targeted improvement in margins would still leave the company a fair way behind the sector in terms of profitability.

“Perhaps surprisingly the dividend is being maintained, with plans to increase it in line with inflation from 2021.

“Investors may wonder if Truscott has missed a trick here. Early in his tenure he probably would have had the room to reduce the payout in order to boost investment in a turnaround of the group.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.