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.
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: | 1,380p | MARKET VALUE: | £509m | |
TOUCH: | 1,365-1,415p | 12-MONTH HIGH: | 1,880p | LOW: 1,315p |
DIVIDEND YIELD: | 2.9% | PE RATIO: | 19 | |
NET ASSET VALUE: | 340p* | NET CASH: | £40.9m |
Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2015 | 109 | 28.0 | 60.3 | 25.6 |
2016 | 117 | 31.5 | 69.1 | 29.3 |
2017 | 133 | 28.7 | 62.9 | 33.5 |
2018 | 142 | 31.8 | 69.2 | 38.1 |
2019 | 147 | 32.4 | 72.8 | 40.4 |
% change | +4 | +32 | +5 | +6 |
Ex-div: | 19 Mar | |||
Payment: | 1 May | |||
*Includes intangible assets of £46.7m, or 126p a share |