Research: Consumer
AG Barr’s (BAG’s) FY23 results highlighted the strength of the brand portfolio as group volumes (+2.4%) outperformed the UK soft drinks category decline of 2.9%. Key brands IRN-BRU (33% of FY24 revenue) and Rubicon (19% of FY24 revenue) grew 8% and 15%, respectively, as flavour innovation and format mix helped to drive volume growth. Management anticipates margin enhancement initiatives to yield a 100bp operating margin uplift in FY25, aided by greater in-sourcing and other efficiency gains. M&A is a possibility given the strong net cash position.
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AG Barr |
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27 March 2024 |
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AG Barr’s (BAG’s) FY23 results highlighted the strength of the brand portfolio as group volumes (+2.4%) outperformed the UK soft drinks category decline of 2.9%. Key brands IRN-BRU (33% of FY24 revenue) and Rubicon (19% of FY24 revenue) grew 8% and 15%, respectively, as flavour innovation and format mix helped to drive volume growth. Management anticipates margin enhancement initiatives to yield a 100bp operating margin uplift in FY25, aided by greater in-sourcing and other efficiency gains. M&A is a possibility given the strong net cash position.
Outperforming the UK market
Despite a challenging backdrop of falling volumes in the UK soft drinks category, BAG delivered revenue growth of 25.9% (including the Boost Drinks acquisition) to £400.0m (FY23: £317.6m), with like-for-like revenue growth of 8.0%. The core soft drinks segment outperformed the wider market, delivering volume growth of 3%, which helped to boost revenue by 30% alongside a full-year contribution from Boost. Margins fell predominantly due to the integration of the lower margin Boost and MOMA acquisitions. However, adjusted EBIT margins of 12.3% (FY23: 13.6%) were better than previously expected following an acceleration of production in-sourcing for the Boost business. Free cash generation remained strong in the year, funding the acquisition of Rio Tropical for £12.3m in October 2023 and enabling a 14.9% growth in the total dividend to 15.05p (FY23: 13.10p).
Rebuilding the margin
Following the investment phase of its margin improvement strategy out to FY26, BAG is now in the rebuild phase post-FY24. Earlier in March, BAG announced it would revisit its route to market for the independent retail channel, moving from direct to store delivery to delivery through existing wholesale partners, alongside a larger field sales team. Management also announced it would fully integrate Boost into Barr Soft Drinks, resulting in a reduction in duplication and efficiency gains. These efficiency gains are expected to aid in achieving an improvement in the operating margin to 13.3% in FY25 and to a further 14.5% in FY26.
Valuation: Discount to peer multiples
On consensus FY25 multiples of 8.7x EV/EBITDA and 15.1x P/E, BAG trades on discounts to its UK peer group median of 8% and 6%, respectively, annualised to the company’s January year-end. However, the company trades at a 18% premium to close peer Britvic on FY25 P/E, likely reflecting the better profit growth expectations, owned brand portfolio and the net cash position of £53.6m.
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Consensus estimates
Source: LSEG |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Energy & Resources
Kolibri (KEI) released its annual reserves statement, which showed good replacement rates despite a visible increase in average production in FY23. At end-2023, the company’s total gross proved reserves declined by only 3% y-o-y to 32.4mmboe, while the total gross reserves increased by 3% to 79.4mmboe. KEI also reported a netback from operations of US$43.0/boe in FY23, marginally below our estimate of US$43.5/boe, on total average production of 2,796mboe. We will update our estimates and valuation following the upcoming release of the FY23 results.