The following two soft drinks makers have shown plenty of fizz lately, but after recent strong growth is there a danger that any investment could fall flat?
Raising the Barr
A.G. Barr(LSE: BAG), maker of Irn-Bru and Rubicon fizzy drinks, as well as Strathmore water, has been full of life lately, its share price rising 33% in the last six months. Over five years, it is up 86%, an impressive long-term gain that conceals a few bumps along the way.
In September 2015, the Cumbernauld-based firm reported an 11.3% drop in first-half pre-tax profits to £16.9m, while sales fell from £135.7m to £130.3m year-on-year. Management blamed poor weather and tough market conditions, but the outlook is sunnier today.
Full-year profits published in March just showed just how convincingly A.G. Barr has turned things round, posting a 4.4% rise in statutory profit before tax to £43.1m, and underlying revenue up 1.5% to £257.1m. The company also reported a robust financial position, with gross margins rising 10 basis points to 46.9%, basic earnings per share (EPS) rising 3.9% to 30.78p and net debt of £11.3m in 2016 turning into a net cash position of £9.7m. Investors were rewarded with an 8% hike in the proposed total dividend for the year to 14.4p, and the yield is now a forecast 2.4%.
The beverage maker may have bridled at the new sugar tax but has responded well, with a commitment that 90% of its brands will contain less than 5g of total sugars per 100ml by the autumn. This is a mature business rather than a whizzy FTSE 250 flyer, with EPS forecast to stay flat in the year to 31 January 2018, although City forecasters reckon they will rise 6% the year after. Revenues and profits look set for steady growth, but trading at 21.7 times earnings you may find bubblier growth plays elsewhere on the index.
So to another fizzy drinks maker, Britvic(LSE: BVIC), which styles itself "Britain's greatest soft drinks company". It certainly has a strong portfolio of brands that includes Robinsons, Tango, J2O and Ballygowan. It also produces and sells Pepsi, 7UP, SoBe and Mountain Dew in the UK and Ireland, under exclusive agreements with PepsiCo, and has shown plenty of bottle in France, and increasingly the US and India.
Over the past five years Britvic's share price is up a thumping 108% and it is currently enjoying another growth spurt, with the stock up 30% in the last six months. So are investors' glasses half full, or close to overflowing? Last week's interims revealed a strong first-half performance, with revenue up 11.5% to £756.3m and pre-exceptional EBITA increasing 6.7% to £73.6m. Profit after tax did fall 4.9% to £38.6m but this was mostly down to the £5.8m impact of exceptional and other items. The interim dividend was hiked 2.9% to 7.2p per share.
Shoot the fruit
Company revenues are growing strongly while management simultaneously tackles costs, with expected savings of £5m in 2017. My one concern is that Britvic's results do not quite justify recent spectacular share price growth, so momentum could slow. However, trading at 14.5 times earnings, the valuation looks sweet.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended AG Barr. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.