SIF Folio: Is AG Barr Poised For A Return To Growth?

20th Apr '22 by Roland Head

11 comments 2310 reads

My SIF buying screen is not offering any suitable candidates for the portfolio this week, so I’ve relaxed my search slightly to include stocks which don’t quite qualify for the screen. I maintain a relaxed version of the SIF screen for this purpose, which you can see here.

The relaxed screen allows me to find companies that pass most of my tests, but may be trading slightly above my normal valuation range. I’ve found this to be a useful source of ideas at times.

One stock that jumps out at me from these relaxed results today is soft drinks group A G Barr (LON:BAG)

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AG Barr was founded in 1875 and is best known as the owner of Irn-Bru. However, the group also has some other valuable brands, including Funkin (cocktail mixers), Rubicon, Tizer and Strathmore. The company also holds UK licences for US brand Snapple and Australian brewed drinks business Bundaberg.

Reassuringly, the group continues to have significant family shareholding and oversight. Non executive director Robin Barr was executive chairman from 1978 to 2009 and controls around 15% of the stock.

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I’ve often found AG Barr a little expensive in the past, but I’ve always admired the business. However, a lacklustre five years means that the shares aren’t quite as dear as they used to be:

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Earnings stalled in 2019. This tough year was followed by the pandemic, which had a big impact on out-of-home consumption.

I think the business may now be bouncing back. Barr’s recent full-year results came in ahead of original expectations and looked good to me.

Stockopedia’s algorithms were also impressed. Barr’s StockRank has risen from 79 to 92 since the results were published on 29 March.

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Although I have some concerns about the growth potential of the group’s core soft drink brands, I can also see a lot to like here. AG Barr has strong margins and a bulletproof balance sheet.

I’m also encouraged by efforts at diversification. Barr’s acquired cocktail company Funkin in 2015 in a deal valued at up to £21m. Funkin has continued to grow well and generated 12.4% (£14.7m) of gross profit during the year to 30 January. This compares to 8.4% (£8.9m) in the…

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gurjit2

20th Apr '22

Hi Roland ,

Excellent analysis once again.

My thoughts are that AG Barrs products such as Rubicon , Irn Bru and Snapple are not leaders in their fields and there is too much 'good' competition against them. I thnk going forwards with cost of living issues coming to the fore these types of companies may suffer a decline in sales , albeit metrics look decent enough as at this time.

Just a thought and indebted once again to very good analysis

Thanks

FederalReverse

Agree to some extent about Rubicon and Snapple not being the strongest brands, strongly disagree with resect to Irn-Bru however. I think for a £600m market cap company Irn-Bru is a very powerful brand. With consumer goods companies I think what your looking for is a moat, i.e. brand affinities that cannot be broken and I think I'd struggle to think of a better example for a small UK consumer goods company. Not expecting Irn-Bru sales to grow particularly strongly, but current purchasers of the brand I think are highly unlikely to replace it with some other beverage, hence the strong moat. For decent growth we'll be looking more to contributions from Funkin and the recently purchased oat milk brand.

If you want to buy the "leaders in the field" then you'll have to buy shares in far larger companies. I think Irn-Bru punches well above it's weight here to be honest, and I agree with Roland, the shares look very fairly priced to me all things considered.

Ok thanks for this view , Its all educational for me

Have a good day.

Andrew Ross

I doubt cost of living will have much of an impact on soft drink sales. For all but the least well off, or price sensitive, it's a small enjoyment worth paying for. The bigger threat surely is to margins from inflation?

Jonathan Upite

Great write up . I don't belive they will suffer any declines in sales . The brands are strong in the UK and are cheaper than the most premium brands . They will never be world wide brands either like coca cola Pepsi . Its just a case of reliable sales with very modest growth . A good company and a good buy at the right price.

Velo

21st Apr '22

This is an extraordinary and invaluable series (SiF) in that the screen for SiF is provided, so the exact same stocks anyone can see before Roland commences to expand further in his articles.

Extraordinary because I know of no other site where the author gives you the exact same screening process as themselves, whilst they rely on broader concepts rather than provision of the actual click-screening process that Roland provides.

And invaluable because the missing ingredient of what you can't have before he reveals it, is Roland's personal analysis, made more invaluable because you've already seen his stocks suitable for selection in the SiF screens, and now can compare your own initial analysis to Roland's viewpoint.

I would love to see a table of the SiF's annual performance from inception.

However, my reason for posting is that just recently Roland mentioned a "Holding screen" he uses in conjunction with his SiF Buying screen. Upon clicking the link provided it's headed: SiF SELL screen.

I wonder if Roland could provide further clarity on that?

Also, not sure if I'm fully on board just yet, with mention in this article of a 'Relaxed' entry screen. It could be a weakening of his already excellent Buying screen filters. - PS. As several guru screens have recently shown fewer selections than in the past, so forcing a relaxed version could dilute the safety margin selection process.

Bronstein

22nd Apr '22

I've not looked at the geographic sales distribution but as a Scot living in Scotland I know Irn Bru is extremely popular here and as Scotland escape from lockdowns has been slower than elsewhere in the UK I would expect local sales to have some tailwinds this year.

Rusty2

Not so popular outside Scotland. Did stock 24 cans in a bar I was involved with, had a job to shift it, fortunately some Scottish kids visited and drank most of it.

Roland Head

23rd Apr '22

Hi Velo,

Thanks for your comments. I'll try and answer your questions below.

Sell/hold screen: You're right about the Sell/Holding screen. It was originally named as the "selling screen", but this caused confusion because I use the screen as a test to see if I can continue to hold a stock.

I had planned to change the name to be 'holding screen'. The reason why I didn't do this was purely technical - changing the name appeared to change the URL of the screen. Doing this would (I think) mean that all the links to this screen in my past articles would be broken.

For this reason, I've decided to leave it unchanged. But I agree it's confusing!

Relaxed screen: This is a direct copy of the SIF buying screen with two changes.

The earnings yield threshold is reduced from 8% to 6%
The maximum rolling PEG ratio is increased from 1.2 to 1.3

The aim of this screen is to identify stocks which fit my normal mould but are trading at slightly higher valuations than usual. I do this so that I can continue investing when market conditions and valuations are buoyant.

SIF annual performance: I'll be publishing an annual review at the start of May (the portfolio was originally launched in late April 2016). I'll include annual figures since inception in this piece.

Regards,

Roland

24th Apr '22

Thanks for the reply Roland. Appreciated.

I'll be particularly fascinated to see the SiF performance since its inception.

I know you've fine-tuned the criteria now and then along the way, so any years where you feel it warrants it, may I suggest just adding an asterisk that refers to a one-liner at the bottom saying something like: 'filter-criteria adjusted that year'.

Aktieninvest

26th Apr '22

I am german and i like the drinks! I bought some shares to hold them many years

SIF Folio: Is AG Barr poised for a return to growth?

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Roland Head

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