Nichols (LON:NICL) , the UK soft drinks group (Vimto worldwide and Panda and Sunkist in the UK as well as Dispense operation) has released a highly positive pre-close trading statement covering the year to 31 December 2010. The excellent trading performance seen in the first half year has continued into the second half of 2010 with full year 2010 revenues once again well ahead of the Group’s internal plans and operating margins that will be in line with plan. The Group’s balance sheet has been strengthened and underlying cash generation will also be ahead of expectations (expectations were for net cash of c £13.6m). They now expect the Group’s profitability for the year to 31 December 2010 to be significantly ahead of last year and ahead of current market expectations (Pre-tax profit £13.55m, and earnings per share of 26.35p).
There are concerns that the UK consumer might reign in discretionary expenditure further in 2011, faced with increased VAT costs and higher energy prices, to name only 2 factors. However, will this really impact their decision making with regard to trusted soft drinks brands such as Vimto, we aren’t so sure! The Group’s Dispense Operation may find it tougher in the UK, however, Nicholls has strong exposure to faster growing overseas markets with c20% of turnover generated overseas. The valuation at c17.8x current 2011 estimates (post today’s share price move) may look high to some but the Group remains cash rich and just keeps on delivering.
