A.G. Barr PLC (LSE: BAG)
A.G. BARR
(LSE: BAG)
Current Market Price: 553.00
Fair Price (Conservative): 632
Expected Return: 15%
Address
Website
Exchange
Industry
Market Cap
52 Week Range
Beta
Price/Book
Price/Earnings (Forward)
Price/Earnings
A.G. Barr PLC
Westfield House,
4 Mollins Road, Westfield,
Cumbernauld, G68, Scotland
Telephone: +44 1236852400
E-mail: info@agbarr.co.uk
http://www.agbarr.co.uk
London Stock Exchange (LSE)
Beverages - Soft Drinks
£ 636.4 Mill
346.00-1,245.33
0.52
5.1
19.4
17.7
Fundamental Analysis
INDUSTRY ANALYSIS
The Beverage Industry is a fairly broad sector and includes companies that market nonalcoholic and alcoholic items.
Among the two segments the non-alcoholic especially soft drink has played a significant role in changing the
economics of beverage industry.
The soft drinks market consists of sale of bottled water, carbonates, concentrates, functional drinks, juices, RTD tea
and coffee, and smoothies. Strong population growth and higher disposable income are key factors to the growth of
the industry and prosperity. Despite the slowdown of the economy the industry has witnessed sharp growth in the
past few years with an expectation to reach $1,347 billion by 2017 with a 4.6 percent CAGR over 2012-2017.
The soft drink industry seems to have matured in the developed countries compelling companies to diversify their
product. Companies are finding new ways to combat the declining domestic market by focusing on exports to key
partner nations and emerging markets. The three main players, Coca–Cola, PepsiCo and Dr. Pepper Snapple Group,
account for over 80 percent of the domestic market share.
Recent research shows that consumer expenditure on soft drinks has risen by $138bn over the past five years in a
global market now worth $469bn. Despite economic pressures consumer appetite for soft drink refreshment shows
little signs of slowing.
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A.G. Barr PLC (LSE: BAG)
According to an international research firm the volume of soft drink production is expected to increase 1.4 percent
per year to 22.1 billion gallons in 2014. The industry is expected to take a positive turn with an expansion of 27
percent by 2015.
While it is anticipated that the demand will soften as consumers become health conscious causing a change in the
behavior. While demand for carbonated soft drinks is slowing, and in certain markets in decline, energy drinks and
bottled water are fueling market growth as consumers seek drinks that not only deliver health benefits but also new
and exciting formats and flavors.
The global soft drinks industry will continue to straddle two different worlds: the mature developed markets where
growth has stagnated and developing markets where previously high growth rates have slowed, but still offer the
greatest upside.
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A.G. Barr PLC (LSE: BAG)
INDUSTRY PEST ANALYSIS
Political
• Strict adherence of Food and Drug regulation imposed by the government in every
nation.
•Governments and laws are restricting ads directed towards children.
• Any changes in the laws and regulations requires the company to change their
operations and procedures to avoid penalties and fines, or even worse to shut down.
• Waste management mandates require every companiy to avoid any operations which
could negatively impact the environment.
Economical
• Economic slowdown forced the companies to launched low priced product.
• Consumers of soft drinks have continued to spend their money frugally over the past few
years.
•Cost of raw materials can rise in case of weak econmy.
• The industry is expected to take a positive turn with an expansion of 27% by 2015.
Social
• Culture and lifestyle is one of the key positive driving forces for the Industry.
• Age is the most important characteristic when evaluating consumer choice, the older
generation is more health conscious and tends to consider nutritional factors.
•About one-third of Americans are considered obese and studies have shown a link
between soft drink consumption and obesity
• Social media is one of the best platforms to keep the consumers connected with the
brands.
Technological
• Technology is one of the key driving forces for the industry
•New tech advancement in manufacturing and quality improvement concepts are
improving operations efficiency.
•High product volume requires high levels of automation and advanced technologies in
manufacturing.
•Technological advancement can enhance the supply chain and cut the distribution
costs.
•High costs for new technology can be a barrier to entry for new competitors.
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A.G. Barr PLC (LSE: BAG)
Key Revenue growth drivers of A.G. Barr PLC
A.G. BARR has delivered a strong financial performance in the last fiscal despite challenging markets. The business
has continued to focus on delivering the basics well. The efforts have driven strong revenue and volume growth and
have continued to build its market share across the soft drink industry. The key revenue drivers of the company are
designed to deliver long term sustainable growth in value and continues to focus on
Brands
The company’s core group brands together with its franchise brand Rockstar, delivered total growth of 8.6
percent. The highest selling brand, IRN-BRU sales grew by 1.4 percent, with a strong second half growth of almost 5
percent. IRN-BRU is expected to grow in both Scotland and England despite the competition in the key take home
channel and difficult weather conditions across the year.
The other major brand is Barr, which showed strong growth by 13 percent throughout the year. Early 2013 ad
campaigns and TV advertising should help the Barr brand grow and develop as a key part of consumers purchase
repertoire specifically in Scotland and increasingly in the rest of the U.K.
The launch of the new brands “Love the Exotic” and PET Rubicon pack targeting “on the go" consumers delivered a
strong second half growth performance of 21.3 percent. Company is enormously spending in the marketing of their
newly launched brands to position itself in the market.
Market
The company’s Scottish market grew by 4 percent, and the rest of the U.K. grew by 12 percent, reflecting both the
significant future growth opportunities and the relatively modest share of this geography currently enjoyed by the
company’s brands. The company is relentlessly focus on developing and improving the execution capabilities across
each route to untapped market around Europe and other developing nations. It is constantly engaged in improving
the quality and commitment of the business to build long term profitable customer relationships.
Partnerships
Company’s key partnership brand in 2012 has been strong, building on long term relationships and excellence in
marketplace execution. Brand partners like Rockstar has helped the company growth 10p percent, reflecting the
consumer acceptance of a strong mix of brand affinity and product acceptability.
The Orangina brand strategy is now well positioned following several years of re-alignment, moving from a volume
based strategy to the current successful value based approach which reflects the brands quality niche positioning.
Last year, Orangina outperformed the soft drinks market and grew revenues by a solid 6 percent. The outcome of this
effective partnership will allow the company to develop as a stronger core offering to international markets and to
successfully accelerate growth in the future.
Innovation
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A.G. Barr PLC (LSE: BAG)
Innovation is one of the key drivers of growth in this sector. For A.G.Barr, innovation played an important role across
2012 in growing its business. The launch of Rubicon into the frozen category in 2012 was an exciting development for
the brand in the ice cream market. The sale of Rubicon is expected to grow in this sector across 2013, despite
challenging conditions in the ice cream sector.
Innovation across all of other core brands will continue to play a key role in the growth of the business by developing
and building the brands to meet constantly evolving consumer needs.
SWOT ANALYSIS OF A.G. BARR PLC
Strength
Strong brand position across
Scotland, labeled as ‘other
national drink’
Specialized in different flavors
and packages.
Low cost product.
Strong distribution channels
to route key markets..
Active participation in major
events such as 2012 London





Weaknesses

Poor personnel management
due to recent acquisitions.

Poor working conditions and
training program.

Weak economy raises the cost
of raw materials and chance
of currency volatility.

No alternatives offered for
increasing health conscious
segments.
Opportunities





Expansion of market across UK.
Diversify into tea and coffee
segments.
Opportunity to enter more
government sponsored events
for wide recognition of brands.
Rising demand of Health and
energy drinks offers another
huge market across USA.
Enter into developing countries
like India and Brazil.
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Threats

Health issues among the
consumers.

Environmental threats due to
improper waste management.

Increasing distribution costs.
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A.G. Barr PLC (LSE: BAG)
COMPANY ANALYSIS
A.G. Barr soft drink, headquartered in Cumbernauld, UK has been making and selling soft drinks for over 130 years.
The company has successfully developed its business through developing its range of brands in soft drinks and fruit
juice. The major brand includes IRN-BRU, Tizer, D'N'B, KA, Barr flavor range, Barr's Originals, Red Kola etc.
IRN-BRU was voted the Best Brand of the last 21 years at the 2007 Scottish Advertising Awards Ceremony in
Glasgow.
A.G. BARR has continued to grow in terms of revenue, volume and profit despite a difficult marketplace and
background of rising input costs. The company has grown in revenue and volume well ahead of the U.K. soft drinks
market.
The business performance was particularly pleasing in the second half of the FY2012, with double digit revenue
growth leading to full year sales of £237.6m, an increase of 6.6 percent compared to the previous year. The company
has continued to build upon its strong financial base leveraging its capacity for growth for the year ended Jan 2013.
The firm witnessed an EBT increase by 4.3 percent to £35.0m compared to previous fiscal year.
The company has delivered growth across both the carbonated and still drinks segments. Overall turnover increased
by £14.7m (6.6 percent), driven by strong growth in volume which increased by 5.6%.
The other brands of the company outperformed the market despite challenging conditions of the UK market.



IRN-BRU sales grew by 1.4%, with a strong second half growth of almost 5%.


Partner brands like Orangina outperformed the soft drinks market and grew revenue by a solid 6%.
KA delivered a strong second half growth performance of 21.3%, with full year growth of over 7%.
Barr brands grew by over 13% across the year, benefiting from both new packaging and a highly relevant
value positioning in the market.
The Rockstar brand has almost doubled in the period, benefiting from market growth of 10%
The company’s balance sheet has strengthened over the last year; its net assets increasing to £130.6m and the capital
expenditure associated with building new production and distribution facility has driven an increase in property,
plant and equipment of £14.6m.
The Return on capital employed (ROCE) has remained strong at 20.6 percent, reducing slightly from the reported
position last year (22.8 percent) due to the inclusion of £17m of assets relating to Milton Keynes. Capital expenditure
is anticipated to remain at similar levels as in 2012.
A free cash flow of £22.0m was generated in the period, representing an increase of £6.1m on the prior year. Shares
with a net value of £0.3m were purchased on behalf of various employee benefit trusts to satisfy the ongoing
requirements of the Group?s employee share schemes. The tax charge of £6.3m is £1.0m lower than the total charge
for the prior year and represents an effective tax rate of 19.7 percent.
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A.G. Barr PLC (LSE: BAG)
The company merged with Britvic Plc and managed to become one of the leading soft drinks companies in Europe,
with a strong portfolio of market leading brands. It offers an opportunity for both companies to enhance their
industry position, and achieve significant synergies and shareholder value.
The company remains committed to its strategy of building brands for the long term and will continue to ensure
having an efficient asset base capable of supporting the company’s future growth ambitions. The company is
improving its operating performance across its existing asset base and investment in new operational capacity at the
Crossley site in Milton Keynes is also making excellent progress. The U.K. economic outlook remains challenging.
However, A.G Barr seems quite optimistic and believes its future prospects are excellent. Overall, the business is
well positioned to deliver long term value for its shareholders. The balance sheet and finances are strong and will
continue to deliver growth across the brands through the implementation of 2013/14 operating plans.
Key Data
Revenue
Earnings
per
share £ (Basic)
Book Value
Share £
Per
Operating Margin
Return on Equity
Return on Assets
Net Margin
Asset Turnover
Leverage
Year ended
Jan 13
£ Millions
Year ended
Jan 12
£ Millions
Year ended
Jan 11
£ Millions
237
222
201
0.24
0.20
0.16
1.09
1.00
0.86
14.9%
23.10%
14.13%
11.88%
1.19
1.55
14.2%
20.80%
11.46%
10.16%
1.13
1.73
13.1%
18.58%
9.48%
8.91%
1.06
1.91
DUPONT A NALYSIS
ROE=Net Profit Margin x Total Asset Turnover x Leverage
The firm’s revenue have significantly increased by 6.7 percent in FY2012 compared to FY2011resulting in rise of EPS
and eventually ROE. As mentioned above EPS rose by 0.2 percent and return on equity by 11.05 percent in FY2012
compared to FY2011.
The company has witnessed a significant growth in ROA in fiscal year 2012 compared to previous year. The net
margin is up 11.88 percent in FY2012 compared to 10.16 percent in FY2011. Asset turnover has increased slightly
evidencing efficient operations of the company.
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A.G. Barr PLC (LSE: BAG)
The company’s leverage dropped in the FY2012 compared to FY2011. The trend clearly allows the investor to expect a
positive growth of the stock in near future and days ahead.
Important Highlights FY 2012
Financial Highlights
The company’s revenue increased by 6.7% from £222m (FY2011) to £237m (FY2012)
EBITDA (pre exceptional items) of £41.7m was generated in the period, representing an EBITDA margin of 17.6%.
EBIT figures in FY2012 up by 4.3% (£ 35.00 Million) from previous fiscal year.
The tax charge of £6.3m lower than the total charge for the prior year representing an effective tax rate of 19.7%, a
reduction of 80 basis points from the prior year.
Earnings per share basic also increased £24.7 in FY2012 from £22 representing an increase of 10.9% on the prior
year.
The firm’s balance sheet has strengthened, with net assets increasing to £130.6m.
Return on capital employed has remained strong at 20.6%, reducing slightly from the reported position last year
(22.8%).
A free cash flow of £22.0m was generated in the period, representing an increase of £6.1m on the prior year.
Operational Highlights
Total operating expenses increased to £76 million in FY 2012 from £68 million reported in the same period of
previous fiscal.
Capex reached £21 Million in FY2012 compared to £6 million in FY2011 due to mergers and new construction of
operational sites.
Net debt reduced to £6.7M.
Net margin decreased by 21% in FY2012 compared to FY2011.
Dividends paid per share in FY2012 increased by 7.6% over the prior year.
RELATIVE VALUATION
Industr
y
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BAG
COCA
COLA
NICL
NRX
OLVAS
SPA
Page 8
A.G. Barr PLC (LSE: BAG)
Market
Cap
$ 2802
Million
£636
Million
$8,235
Million
324
Million
€461.1
Million
-
€278.1
Million
Revenue
(2011)
-
Price/Earnin
gs TTM
Price/Book
-
237
Million
£
17.7
8,062
Million
$
16.9
108
Million
£
22.9
254
Million
€
31.2
285
Million
€
18.6
197
Million
€
38.5
-
5.1
3.9
8.4
1.9
2.9
2.9
Price/Sales
TTM
Rev Growth
(3 Yr Avg)
-
2.0
1.4
3.1
1.7
1.4
1.4
-
11.8
7.4
20.7
39.6
8.7
-1.7
EPS Growth
(3 Yr Avg)
-
18.3
9.8
64.9
18.4
2.1
-
Operating
Margin %
TTM
Net Margin
% TTM
-
14.0
11.5
18.5
11.1
9.0
4.8
-
11.2
8.4
13.7
5.5
7.4
3.7
ROE TTM
Debt/Equity
-
22.4
-
24.2
1.1
40.0
-
7.0
0.4
17.1
0.3
7.8
-
Price/Earnin
gs
-
17.7
16.9
22.9
31.3
18.6
38.5
Price/Book
-
5.1
3.9
8.4
1.9
2.9
2.9
Price/Sales
-
2.0
1.4
3.1
1.7
1.4
1.4
Price/Cash
Flow
-
24.9
12.1
21.7
37.2
7.7
41.2
Dividend
Yield %
-
1.8
1.8
2.0
0.2
2.0
0.9
(Data Source: www.morningstar.com)
A.G. Barr Plc is one of the leading company in soft drink and juice market after Coca Cola. The company has seen
considerably grown in the past few years bagging one of the bestselling brands in UK and Scotland.
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Page 9
A.G. Barr PLC (LSE: BAG)
Despite economic challenges company has witnessed excellent turnover, volume and profit growth. The group has
delivered performance ahead of a robust soft drinks market, increasing market penetration and continuing to build
brand equity. Looking at the trend of the industry and figures, the company should continue to outperform.
FAIR PRICE CALCULATION
PROFIT AND LOSS ESTIMATES
Fiscal year ends in January. Pounds in thousands
except per share data.
Projected
Full Year 2013
Jan-07
Revenues
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Conservative
Optimistic
141,876
148,377
169,698
201,410
222,366
236,998
237,595
262,169
262,169
71,453
76,068
84,962
98,153
107,987
118,253
129,591
132,370
130,812
Costs and Expenses
Cost of revenue
Depreciation and amortization
5,814
6,901
7,358
7,885
7,717
7,301
6,772
9,888
8,076
46,275
45,019
54,194
69,044
75,124
76,219
69,444
84,023
84,314
2,761
468
Operating Income(Loss)
15,573
19,921
23,184
26,328
31,538
35,225
31,788
35,888
38,966
Other income (expense)
781
912
25
(1,878)
(1,102)
192
34
(57)
212
16,354
20,833
23,209
24,450
30,436
35,417
31,822
35,831
39,179
3,163
3,995
6,134
6,502
7,851
7,271
6,258
7,864
8,043
13,191
16,838
17,075
17,948
22,585
28,146
25,564
27,967
31,135
Basic (Pence)
69.95
86.75
89.12
46.84
58.84
73.43
22.06
24.13
26.87
Diluted (Pence)
68.15
85.65
88.16
46.49
58.51
73.03
22.04
24.11
26.85
Basic
18,939
19,409
19,158
38,318
38,385
38,328
115,884
115,884
115,884
Diluted
19,356
19,657
19,368
38,601
38,601
38,542
115,979
115,979
115,979
Total Operating Expenses
Exceptional Item
Income before taxes
Provision for income taxes
Net Income
Net earnings per share:
Weighted average shares
GROWTH RATES AND COST OF EQUITY CALCULATIONS
AT YEAR END
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Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Page 10
A.G. Barr PLC (LSE: BAG)
Total assets
118,631
123,699
186,912
191,869
202,174
196,250
214,838
47,254
38,921
94,247
91,360
85,467
69,230
84,190
Debt Ratio
71,377
0.40
84,778
0.31
92,665
0.50
100,509
0.48
116,707
0.42
127,020
0.35
130,648
0.39
Debt/Equity
0.66
0.46
1.02
0.91
0.73
0.55
0.64
Return on Assets
11.12%
13.61%
9.14%
9.35%
11.17%
14.34%
11.90%
Return on Equity
18.5%
19.9%
18.4%
17.9%
19.4%
22.2%
19.6%
13,000
15,000
11,349
5,358
9,840
6,937
21,166
Change in Non Cash Working Capital
5,718
-1,591
13,324
7,606
5,616
-7,708
2,872
-2,744
8,486
5,614
12,645
4,159
15,984
3,339
ROA
11.46%
Retention Ratio
70%
Debt/equity
0.71
Interest rate
6.00%
Tax Rate
20%
Fundamental Growth Rate
11.3%
Total Liabilities
Total Stockholders’ equity
Capital Expenditure
Non Cash Working Capital
Income Growth Rates Forecast High Growth
Period
Analysts (Source) FT.com
Weight
14%
0.2
Last Year Growth Rate
7%
0.3
Fundamental Growth Rate
11%
0.5
Weighted Average Forecasted Growth Rates
10.34%
Expected Debt Ratio
0.41
Beta
0.524
Risk Free Rate
4.20%
Return from Market
13.00%
Cost of equity
9%
3 Yr Avg
S&P500
Return
FREE CASH FLOW TO EQUITY AND FAIR PRICE CALCULATION
Conservative
All Figures in '000s except per share data
Year
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High Growth
2013 E
2014 E
Stable
2015 E
2016 E
2017 Onwards
Page 11
A.G. Barr PLC (LSE: BAG)
Growth in Revenue
10.34%
10.34%
10.34%
10.34%
4.0%
Net Sales
262,169
289,285
319,205
352,220
366,309
Depreciation
9,888
10,911
12,039
13,284
13,816
Net Income
27,967
30,859
34,051
37,573
39,076
CAPEX
16,809
18,548
20,466
22,583
23,486
Change in Non Cash Working Capital
(3,391)
1,303
1,437
1,586
677
Cash Flow to equity
30,045
36,121
39,857
43,979
45,166
9%
9%
9%
9%
9%
Cost of Equity
Terminal value
Present value of cash flows
938,761
27,612
FCFE (In '000)
733,330
No of shares (In '000
115,979
30,508
30,937
644,274
Share price per share acc to valuation
Conservative
632
Current Market Price
549
Return
15%
Optimistic
All Figures in '000s except per share data
High Growth
Stable
Year
2013 E
2014 E
2015 E
2016 E
2017 Onwards
Growth in Revenue
10.34%
10.34%
10.34%
10.34%
4.0%
Net Sales
262,169
289,285
319,205
352,220
366,309
Depreciation
8,076
10,911
12,039
13,284
13,816
Net Income
31,135
30,859
34,051
37,573
39,076
CAPEX
16,809
18,548
20,466
22,583
23,486
1,343
1,303
1,437
1,586
677
37,065
36,121
39,857
43,979
45,166
9%
9%
9%
9%
9%
Change in Non Cash Working Capital
Cash Flow to equity
Cost of Equity
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Page 12
A.G. Barr PLC (LSE: BAG)
Terminal value
Present value of cash flows
938,761
34,064
FCFE (In '000)
739,782
No of shares (In '000
115,979
30,508
30,937
644,274
Share price per share acc to valuation
Conservative
638
Current Market Price
549
Return
16%
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Page 13