AG Barr profit growth to be ‘slower than expected’: City

The branded soft drinks group reported total turnover up by 6.6% to £237.6M. Profit on ordinary activities –  before tax and exceptional items – increased by 4.3% to £35M.

Panmure Gordon analyst Damian McNeela said the firm remained “well placed”​ to deliver revenue growth ahead of the UK market and maintained his forecasts of 5% revenue growth to £265M in the 2013 financial year.

But growth in profit was likely to be less than expected. “We do not feel that the company will be able to rebuild margins as quickly as our forecasts suggest,” ​said McNeela. “We are lowering our gross profit margin assumptions to 50% resulting in a 5% reduction in profit before tax to £37.8M in financial year 2014.”​

Profit before tax​

McNeela also cut the profit before tax forecasts by 3.5% to an estimated £40.8M in financial year 2015. That represented an earnings per share growth of 10.5% to 25.3p in 2014 and 7.8% to 27.3p in 2015.

Panmure Gordon retained its ‘hold’ advice on AG Barr’s stock.

Investec analyst Nicola Mallard said the manufacturer had shown good progress despite the sluggish market.“Sales show good momentum as the group steadily targets 'white space', building distribution out from its strong regional positions,” ​she said. “The group has made significant progress adding to its manufacturing capabilities, with the Milton Keynes site rising from the paper plans into a full structure. The balance sheet remains strong, despite this spend, with low net debt to EBITDA​ [earnings before interest, tax, depreciation and amortisation] of 0.6x.”​

The Milton Keynes plant is expected to come on stream this summer.

Investec increased its financial year 2014 forecast marginally from £37.2M to £37.5M with an earnings per share of 25.1p.

‘Merger on the back burner’​

Mallard noted that the proposed merger with Britvic was “on the back burner​ for the next six months, while Barr progresses with its own growth plans”.​

Roger White, AG Barr chief executive, said the firm “continued to grow well ahead of the UK soft drinks market”.​

The poor summer weather and further cost of goods inflation had adversely affected performance, he added.

Meanwhile, the business had remained focused despite “the added distraction”​ of the merger discussions with Britvic. “We are now entering a period of significant workload associated with the Competition Commission enquiry. However the AG Barr board considers there to be a compelling rationale for clearance and that the benefits of the transaction remain significant for both shareholder groups,”​ said White.

The Competition Commission is reviewing the potential impact of a merger between the two companies.