- Irn-Bru maker plans further cost efficiencies
- Strathmore bottled water brand to be discontinued
- Scottish firm’s balance sheet remains rock solid
- Shares nearing a five-year high but lie one-third below 2019 all-time peak
“The last decade has thrown a lot at AG Barr, in the form of new regulations on sugar content, Covid-19, carbon dioxide shortages and input cost inflation (and they are all before the usual issues of competition and changing trends in consumers’ tastes), but the Scottish firm’s latest full-year results suggest it is coping well,” says AJ Bell investment director Russ Mould.
“Sales are up, profit margins are expanding, and cash flow remains strong, but management is not taking anything for granted, given plans to discontinue the Strathmore water brand and integrate the FUNKIN operations, acquired a decade ago, into those of the wider group to create a more streamlined operation.
“Such an efficiency drive may seem odd to some, when the company is reporting record annual profits and is forecast to deliver a higher number again in the financial year to January 2026.
Source: Company accounts, Marketscreener, analysts' consensus forecasts. Financial year to January.
“However, profit margins are still some way below prior peaks after a torrid series of challenges and cost pressures over the past five years.
“The good news is that the company continues to adapt to changes in consumer tastes and trends, in terms of both product and its route to market, and drive cost efficiencies.
“The acquisitions of Rio and oat milk maker MOMA have both broadened its product portfolio, which is still spearheaded by the iconic Irn-Bru fizzy drink and its three other power brands, namely Rubicon, Boost and FUNKIN.
“FUNKIN suffered another difficult year, as sales fell, and this has prompted management to integrate its operations into those of the wider group. Investment in capacity and supply chains should bring further cost benefits, too, and chief executive Euan Sutherland expects profits to grow faster than sales in the coming year as profit margins expand once again, even if 2018’s pre-Covid zenith of a 17.1% return on sales remains some way off.
“That may explain why the shares still sit around a third below their pre-Covid all-time peak, even after their strong run of the past three years, although the annual dividend is now reaching new highs.
“This reflects how improved profits support cash flow and how cash flow bolsters AG Barr’s already healthy balance sheet. At the end of January 2025, the company had a net cash position of £63.9 million, up from £53.6 million a year ago. The company also has a pension surplus.
“Such solid finances permit AG Barr to invest in, and protect, its competitive position in the face of multiple challenges and also reward shareholders for their support with dividends.
“After a hiatus during Covid-19, AG Barr is firmly back on the dividend growth trail. Mr Sutherland and the board sanctioned a 12% increase in the full-year distribution to 16.86p and analysts have already pencilled in a further 10% advance to 18.58p a share in the coming year.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to January.
“Those figures equate to forecast forward dividend yields of 2.6% and 3.0%, respectively.
“They may not catch the eye of income-seekers, given that ten-year gilts yield 4.75%, but over the past decade AG Barr has still paid out 109.7p a share in dividends, despite Covid-19 and lockdowns.
“The next two years alone offer the prospect of a further 38.5p a share in additional payments, if analysts’ forecasts are correct.
“The Cumbernauld-based business may therefore merit further patient support from investors, even if the shares do not look like an outright bargain on 14 times 2026 earnings, as this still represents a slight premium to the FTSE 100 and the wider UK stock market.
“However, healthy cash flow and a rock-solid balance sheet can help to justify that premium, and an acceleration in earnings may persuade investors to take a second look, bearing in mind how AG Barr’s shares have de-rated from nearly 30 times earnings in 2019.
“That rating will have been influenced by the zero interest policies that prevailed at the time, and the scramble for reliable earnings and cash flow streams that such policies provoked, wittingly or otherwise. As it turned out, investors mistook reliability for safety and by paying such a fat price they managed to render even a ‘safe’ stock dangerous, especially as unexpected events came out of the clouds to question even AG Barr’s reliability credentials.
“Former boss Roger White and the board did much to help the company navigate a particularly difficult time and if Mr Sutherland can build on that foundation and show that AG Barr can still generate consistent profit and dividend growth then the stock could re-rate, even if arguing for a 30-times multiple feels like a bit of a stretch (at least unless interest rates go back to zero).”
