Join our community of smart investors

Nichols scrambles to offset excise hike

The Merseyside pop group is having further issues with the taxman
February 26, 2020

The determination of Middle Eastern governments to generate tax revenues, rather than any concerns over the growing incidence of sugar-related diseases, was the principal reason why Saudi Arabia and the UAE slapped a 50 per cent excise tax on sweetened juice drinks at the end of last year.

IC TIP: Hold at 1,380pp

It’s a material issue for Nichols (NICL), given it increased shipments of Vimto concentrate to the Middle East by a fifth in 2019, feeding through to a 7.5 per cent revenue increase in international markets. It’s been open season on soft drinks manufacturers, evidenced by a similar tax raid by the UK exchequer, but continued progress at the margins (and the introduction of the IFRS 16 accounting standard) enabled the Merseyside-based group to increase cash profits by 9.5 per cent to £37m.

The group intends to partially absorb the tax hike, perhaps resizing products, thereby limiting price increases. The principal aim is to protect (and increase) hard-won volumes in the region, so Nichols is also stepping up targeted “Below-the-Line Marketing”.

Problems in the Middle East haven't been restricted to the taxman, as operations were also impacted by the civil war in Yemen, which closed a supply route in 2017. Closer to home, the prospect of price increases for drinks in single-use containers presents another potential stumbling block.

N+1 Singer is looking for 2020 adjusted cash profits of £33.6m, leading to EPS of 64.5p, rising to £34.8m and 66.8p in 2021.

NICHOLS (NICL)   
ORD PRICE:1,380pMARKET VALUE:£509m
TOUCH:1,365-1,415p12-MONTH HIGH:1,880pLOW: 1,315p
DIVIDEND YIELD:2.9%PE RATIO:19
NET ASSET VALUE:340p*NET CASH:£40.9m
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201510928.060.325.6
201611731.569.129.3
201713328.762.933.5
201814231.869.238.1
201914732.472.840.4
% change+4+32+5+6
Ex-div:19 Mar   
Payment:1 May   
*Includes intangible assets of £46.7m, or 126p a share