• Robust third-quarter growth
• Extra capacity boosting sales
• Steady volume growth
Beverage maker AG Barr's (BAG) trading update earlier this month revealed solid progress. Indeed, sales in the 18 weeks to 1 December rose 8 per cent and profit margins were maintained - despite higher promotional activity for its iconic Irn-Bru drink and tough comparatives from last year, when third-quarter sales shot up by 13 per cent.
Unlike at many of its peers - who are generating growth through price rises - Barr saw its volumes increase 6.4 per cent in the 18-week period. For the year-to-date, that means revenue has increased 6.7 per cent, with volumes up 5.1 per cent over that time. This performance easily beat that seen in the wider drinks market, where growth totalled 4.1 per cent by value, and 3.1 per cent by volume. The figures also suggest that Barr has seen sales pick up over the period to reach double-digit growth in the third quarter.
Extra canning capacity from Barr's new factory in Milton Keynes certainly helped to deliver that progress - the facility was completed on time and on budget. A second phase of development at the site, which would add even more capacity, now looks increasingly likely.
Investec Securities says...
Add. AG Barr's third-quarter data shows barely a slowdown from the strong second-quarter performance - that benefited, to some degree, from the strong summer weather-led market. The group is focusing more on driving volumes given the competitive market and also the greater availability of product - now from Milton Keynes. Importantly, however, that's not at the expense of margins. Although year-to-date figures are running ahead of our full-year revenue estimates, we're not changing our numbers ahead of the important Christmas season, and expect pre-tax profit of £37.5m for the end of January 2014, with EPS of 25.3p. Barr's shares have been resilient in recent months, but they've not taken part in the mid-cap rally - leaving their justified premium rating, compared with peers, looking solidly underpinned. Our price target stands at 585p.
Shore Capital says...
Hold. It has been a strong period for Barr and performance is set against challenging comparatives. The trading update suggests that the group has pretty much underpinned current expectations and we are hopeful of upgrades for the full year - subject to performance over Christmas. Barr's shares are trading on about 21 times our 2014 full-year earnings estimate (25.4p) and an enterprise value-to-cash profits ratio of 14.2 times, with a 2 per cent yield. That's a high valuation, but warranted given the strong performance and the group's track record of delivery. However, to be more positive on the shares we need to see reasonable upgrades coming through. That's possible, given current trading momentum, but the consumer retail environment remains challenging and unpredictable so, for now, we retain our hold recommendation.
