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LUCY TOBIN | THE TIPSTER

Share tip: Get a taste for AG Barr and its special br

The Sunday Times

If AG Barr’s drinks cabinet was stocked purely by its reputation, it would probably include just one brand: Scotland’s celebrated Irn-Bru. But while the Cumbernauld-based AG Barr still flogs a lot of the fizzy orange stuff — launched in 1901 and today making up about 40 per cent of revenues — it now has far more on its shelves.

Acquisitions include 2006’s Strathmore water, Rubicon exotic fruit juices two years later, Funkin pre-mixed cocktails in 2015, Boost energy drinks earlier this month, and, just before Christmas, the part of Moma Foods (maker of vegan oat milk and porridge) that AG Barr did not already own.

Together, these deals have diversified the group, which now spans soft drinks such as Tizer and Snapple, and the high-growth markets of plant milks, “functional” drinks for fitness fanatics and ready-made cocktails. Meanwhile, Irn-Bru remains staunchly popular with its big fan base.

AG Barr’s sales for the first half of this year bubbled up by a fifth to £158 million thanks to the heatwave and the return of hospitality after Covid. Historically, strong branding has made the drink-maker’s numbers resilient — revenues grew during the last recession — but in the coming months, analysts expect AG Barr’s momentum to slow. Its historically strong margins are being affected by price inflation of ingredients as well as higher energy, sugar, CO2 and packaging costs, adding some £25 million to its bills.

Consequently, more price increases are expected to be slapped onto AG Barr’s cans next year, which may well have at least a small impact on volumes. Still, the firm’s “value-focused” brand Barr Cola (which is £2 for four litres in Iceland) could mop up some bargain hunters who are trading down.

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AG Barr has a very strong balance sheet thanks to conservative financing — a healthy hangover of its history as a family business. At the half-year, it had £61 million in cash and minimal debt, leaving about £40 million after this month’s purchases for more potential merger and acquisition activity to spur on the shares.

Meanwhile, AG Barr is currently trading on an undemanding 15 times earnings, while offering a 2.9 per cent dividend yield. Shares are still half their 2019 record high, despite pre-tax profits being less than 10 per cent off their pre-Covid peak, and even though acquisitions are providing more momentum.

This growing stable of proprietary brands, boosted by experienced management and sleek manufacturing plants, looks undervalued. AG Barr has plenty of fizz despite the rocky consumer outlook: buy.

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