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 brands include RN-BRU, Rubicon and Funkin.

On 30 March 2021, the Company will release its 2021 full-year results.

Rationale for Valuation – Speculative Buy at GBX 484.00

• As per valuation metrics, Price/Cash Flow multiple is currently lower than the Beverages industry.
• The Company has decent fundamental metrics as it has maintained a gross margin above 40% for the last three years.
• The current ratio has also stayed above 1.2x during the past three years, reflecting substantial liquidity to meet short-term obligations.
• In FY21, the revenue is expected to be marginally ahead of the revised guidance and operating margin is expected to be in line with the prior year.
• From the technical standpoint, shares were trading well above the short-term support level of 200-day (around GBX 470.98) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The Company’s products are sold in several countries worldwide, which can create risks and uncertainties in multiple jurisdictions across developing and developed markets.
• Moreover, the Covid-19 pandemic has created extreme volatility in the short term as a result of the social restrictions implemented across the world.
• The impact of the virus on economic conditions over the medium-term is highly uncertain post-Brexit.

Trading Update (in respect of the financial year ended 24 January 2021, as on 26 January 2021)

• The Company expects 2021 revenue to be around £227 million, which was slightly ahead of the revised guidance.
• In the full financial year, the operating margin, before exceptional items, is expected to be in line with the previous year, while profit before tax and exceptional items will be ahead of market expectations.
• In the first four months of the 2021 second half, the trading was at the guidance's upper end.
• The Company has stayed strongly cash generative, with expectations of approximately £50 million net cash at bank at the year-end.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company expects 2021 results ahead of the previous guidance. Despite the difficult prevailing circumstances, the Company has delivered a creditable performance in the last four months of the second half. For FY21, the revenue is expected to be slightly ahead of the revised guidance. Moreover, the operating margin is expected to be in line with the previous year. Overall, the business has stayed strongly cash generative throughout the year. The stock made a 52-week low and high of GBX 369.00 and GBX 580.00, respectively.

Based on decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on A.G.Barr at the current market price of GBX 484.00 (as on 25 February 2021, before the market close at 8:00 AM GMT), with lower double-digit upside potential based on 24.93x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*All forecasted figures and Peers information have been taken from Refinitiv, Thomson Reuters.

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

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