AG Barr (BAG) 497p

Gain to date: 2.6%

We said to buy soft drinks maker AG Barr (BAG) at 484.5p in August arguing the business was not being given due credit for the momentum behind its sales and observing it was strategically well-placed for further growth despite the looming departure of its long-serving CEO Roger White.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The shares have made modest progress – although that’s not to be sniffed at given the difficult market backdrop in the interim – and there have been two pieces of news of some significance.

First on 26 September the company revealed strong first half growth and confidence in delivering on full year profit expectations.

Revenue for the 26 weeks to 30 July increased 33% to £210.4 million boosted by the takeover of Boost Drinks in December 2022. On an organic basis revenue was up by 10%.

Adjusted pre-tax profit increased by 6.7% to £27 million reflecting a lower adjusted operating margin of 12.5% (16.2% last year) due to a lower margin at the Boost division and a decision not to fully pass on cost inflation.

The MOMA foods division saw significant growth of 24% compared with the same period last year as oat milk continues to outperform other plant-based categories.

Subsequently on 24 October, the company announced the purchase of tropical fruit drink brand Rio for £12.3 million. The deal was funded out of cash and looks a logical and sensible step given the recently acquired Boost already markets, sells and distributes the brand.

WHAT SHOULD INVESTORS DO NOW?

We think soft drinks is a category, which, while exposed to the vagaries of the weather, is less affected by consumer sentiment. People are unlikely to put off buying a can of fizzy drink even in a tricky economy and even if it costs a few pence more than it used to. In addition, brands are important in driving investment decisions.

AG Barr’s strategy looks sound, it has a very solid balance sheet and recent acquisitions are making a big contribution. Keep buying the shares. 

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