We haven't been able to take payment
You must update your payment details via My Account or by clicking update payment details to keep your subscription.
Act now to keep your subscription
We've tried to contact you several times as we haven't been able to take payment. You must update your payment details via My Account or by clicking update payment details to keep your subscription.
Your subscription is due to terminate
We've tried to contact you several times as we haven't been able to take payment. You must update your payment details via My Account, otherwise your subscription will terminate.
author-image
LUCY TOBIN | TIPSTER

Nichols may just quench your thirst

The Sunday Times

Nichols, the maker of purple squash Vimto, describes itself as a “diversified soft drinks business”. Given that its other products include the brightly hued Slush Puppie, “unicorn watermelon” flavour Starslush and orange Sunkist, perhaps the “diversity” part comes from the range of lurid colours on offer to consumers.

In any case, the Aim-listed Nichols has had to contend with a string of difficulties in recent years. Some have been felt across the industry — such as soaring expenses, the UK sugar tax, Covid and the ensuing carbon dioxide shortages, and the cost of living crisis — but others have been more company specific. Nichols struck a profit warning in 2019 over the impact of a soft drink levy in Saudi Arabia and the UAE, where Vimto is a particularly popular choice to replenish energy at the end of a day’s Ramadan fasting.

Consequently, shares in Nichols, currently trading around £10.60, are a quarter lower than they were five years ago and down 3 per cent since the start of this year, with investors also being put off by a drinks maker that has told them to expect pre-tax profit for this year to come in flat or only a wisp higher than last year’s £25 million.

There are bubbles of opportunity in Nichols’s stock, though. First, buoyant demand overseas: revenues were up 26 per cent in Africa and 17 per cent in the Middle East in the six months to June 30 — helping to offset lower sales at venues such as cinemas and bowling centres in the UK, and leaving overall interim revenues of £86 million, up 6.6 per cent on last year. Andrew Ford, at broker Peel Hunt, flags the “immense potential” of the African market for Nichols, “with an opportunity to establish Vimto as a leading beverage in the region”.

Second, there is self-help work in Nichols’s extensive review of its more capital-sapping “out of home” business (mostly iced drinks sold in theme parks, cinemas and the like). It is cherry-picking profitable sites and dumping others, which is set to boost margins — and thus profits — from 2024 onwards.

Advertisement

Meanwhile, the firm’s balance sheet is strong: debt-free and with £56 million in cash, up from £49 million a year ago — a cash pile that will benefit further from rising interest rates. The stock is a reliable dividend payer, handing out a yield above 4 per cent last year on the back of its excellent cash generation.

Sahill Shan, an analyst at Nichols’s house broker, Singer Capital, pointed out that the company has “overcome a raft of hurdles over the last three years”, and said he is now “confident about Nichols returning to growth”.

Vimto may feel slightly anachronistic in the mature, newly health-focused UK beverage market, but there is growing thirst for Nichols’s low-asset packaged business in emerging markets. With the shares changing hands at a price-to-earnings ratio of 16, it’s not in bargain basement territory, but the overseas growth opportunities look frothy. Buy.

PROMOTED CONTENT