A.G. Barr PLC

A.G. Barr PLC (LON: BAG) is a FTSE All-Share listed manufacturer and seller of aerated water and soft drinks. The Company’s brand includes RN-BRU, Rubicon and Funkin.

Investment Highlights - Speculative Buy at GBX 509.00

• As lockdown restrictions continued to lift, the re-opening of hospitality venues can support the demand for soft drinks.
• BAG has taken prudent actions to maintain financial stability and sustain resilient financial performance. The Board expects to make further progress in FY22.
• The Company continued to invest in the brand equity for long-term, while it remained a profitable and cash-generative business in a robust drinks sector.
• Over the past three years (FY18 to FY21), the current ratio and quick ratio have remained above 1.44x and 1.14x, respectively. Both the ratios demonstrated better liquidity against the industry median.
• In terms of technical indicators, 50-day EMA (GBX 506) is sustaining below the current market price and supporting the upside potential.

Key Risks

• The business performance can be impacted by the changes in consumer preferences, perception or purchasing behaviour.
• With the Covid-19 pandemic, loss of continuity of supply of major raw materials can also put pressure on operating cost.
• Further, there is a risk with government intervention on climate change and environmental issues, e.g., packaging waste.

Final Highlights for the year ended 24 January 2021 (30 March 2021)

(Source: Company Website)

• Despite a challenging backdrop, BAG demonstrated resilient financial performance and clear strategic focus.
• The Group has completed the re-engineering projects for right-sizing the organisation and bring further business growth.
• The Group has intentions to recommence dividend payments in FY22.
• It has a strong pipeline for FY22, and it is utilising digital platform to take advantage of changing market dynamics.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative

Conclusion

During FY21, the Company delivered a resilient operational and financial performance and having clear intentions to resume dividend in FY22. The Group has also made significant investments to make further progress. It has increased drive towards a multi-beverage operating model and developing digital platforms to meet changing market dynamics. The stock made a 52-week high and low of GBX 550.00 and GBX 369.00, respectively. On the technical chart, the next important support level is at GBX 463.00.

Based on the strategic progress, resilient performance, stronger balance sheet, and support from the valuation as done using the above method, we have given a “SPECULATIVE BUY” stance on A.G. Barr PLC at the current price of GBX 509.00 (as on 13 May 2021, at 8.54 AM GMT), with lower double-digit upside potential based on 24.69x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

PayPoint PLC

PayPoint PLC (LON: PAY) is a FTSE All-Share listed Company, which provides consumer payment services. The Group operates through three business segments, namely Bill payments, Top-ups and eMoney, and Retail services.

On 27 May 2021, Paypoint expects to unveil its preliminary results for FY21.

Investment Rationale – Speculative Buy at GBX 573.26

• The acquisition of RSM 2000 Ltd will enhance the digital payments capability and the business shall take advantage of the shift from cash to digital payments due to Covid-19.
• On 8 April 2021, Paypoint completed the disposal of PayPoint Services SRL (Romanian business) at a significant profit to improve its financial strength and underpinning UK-focused strategy.
• Over the past three years (H1 FY18 to H1 FY21), PAY has maintained ROE and net margin of above 30%, and 20%, respectively. It reflects a decent fundamental.
• From a technical perspective, 14-day RSI (38.40) is hovering close to an oversold position and supporting the upside potential. 

Risk Assessment

• The Company has a large volume of payments which creates a significant risk of fraud or credit risk.
• Moreover, over dependence on key clients (for example: British Gas) can adversely impact the business model.
• Further, the business performance is subject to uncertainties related to change in consumer trends, regulatory requirements, rapid technical innovation, and cybersecurity risk.

Recent News

12 April 2021: PAY completed the acquisition of RSM 2000 Ltd to enhance its existing MultiPay digital payments portfolio.

Trading update for the three months ended 31 December 2020 (as on 21 January 2021)

• PayPoint highlighted major client renewals and new business sector wins in digital payments.
• It also affirmed robust underlying performance and solid position to take advantage of structural trends accelerated by Covid-19.
• Since 31 March 2020, PayPoint One sites increased, card payment transactions grew significantly and there was good progress on the banking proposition.
• The Board recommended an interim dividend of 15.6 pence per share.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative) 

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

The underlying performance is projected to be at the higher end of expectations for FY21. Moreover, the recent business reorganisation shall deliver a more streamlined and accountable structure across the business. The continuing government restrictions might create uncertainties in the outlook; however, the Company has taken necessary steps from the first lockdown to stay resilient. It has maintained a consistent dividend policy, which reflects long-term confidence in the business, the strength of underlying cash flow and the enhanced growth prospects. The stock made a 52-week High and Low of GBX 790.00 and GBX 483.00, respectively. On the technical chart, the next important support level is at GBX 529.00.

Based on the robust business performance, tight operational focus, reduced net corporate debt, successful completion of acquisitions, favourable structure trends, new client wins supported by the valuation conducted above, we recommend a “SPECULATIVE BUY” stance on PayPoint PLC at the current price of GBX 573.26 (as on 13 May 2021, at 10.15 AM GMT) with lower double-digit upside potential based 14.66x Price/NTM Earnings(approx.) on FY21E Earnings Per Share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

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