Nichols' packaged business accelerates

Investors sent Nichols' (NICL) shares up by 5 per cent after the soft drinks maker reported a 9 per cent rise in adjusted profits and reaffirmed its guidance for full-year earnings to sit in line with market expectations, despite warning that “consumer spend is still under pressure from continuing high levels of inflation”.

Chief executive Andrew Milne told Investors’ Chronicle that the company’s asset-light core packaged business “is where we have headroom, particularly internationally”. Packaged revenues rose by 10.4 per cent in the half to £65mn, with all international markets posting a double-digit uplift. After the UK, Africa is the division’s next largest revenue stream.

Sales in the more capital intensive ‘out of home’ (OoH) division, meanwhile, fell by 3.5 per cent to £21mn because of a move away from less profitable customers and products. A strategic review of OoH was completed in 2022, with the board hoping to see tangible benefits from next year on margins and profitability.

While the company implemented price rises, this only covered inflation in the cost of goods. Operating margin fell by 40 basis points to 12.1 per cent, a respectable enough posting given the circumstances but hardly an awe-inspiring result.

Sahill Shan, an analyst at house broker Singer Capital, said that “having overcome a raft of hurdles over the last three years and put OoH on a firmer footing, we are confident about Nichols returning to growth and a clear mid-term path to margin/ROCE enhancement”. These results also instil us with some positive sentiments on Nichols. But a consensus forward price/earnings ratio of 18 times, according to FactSet, makes it look like the growth outlook is baked into the rating. Hold.  

Last IC view: Hold, 1,038p, 1 Mar 2023