Tuesday 24 September 2019 9:30 am

Irn-Bru owner AG Barr's share price rises despite plummeting profits

Irn-Bru maker AG Barr’s share price rose in early trading as it clung onto its full-year outlook despite posting a huge drop in first half profit.

Read more: Irn-Bru maker AG Barr’s share price crashes after profit warning

The figures

Revenue fell 10.5 per cent year on year to £122.5m for the six months to the end of July.

Profit before tax also sank to £13.9m, a decline of 23.6 per cent from last year’s £18.2m first-half haul. It has warned of a 20 per cent hit to its full-year earnings.

AG Barr’s operating margin also shrank to 11.6 per cent, from 13.4 per cent last year, and it cut earnings per share from 12.7p last year to 9.8p this year.

The company managed to fractionally improve its interim dividend from 2018’s 3.9p per share to a square 4p per share for 2019.

Why it’s interesting

Analysts pinned AG Barr’s 7.5 per cent share price rise on the fact that investors saw no further deterioration from the drinks company’s summer profit warning.

Then it warned of full-year profits falling 20 per cent lower, but today did not lower guidance further.

AG Barr admitted it had underestimated the volume benefit it got in 2018 “from both one-off trading factors and favourable weather”, contributing to the decline in profits.

The business said it would continue with a share buyback and stuck to its dividend, buoying investor confidence.

The company said consumers were accepting higher drinks prices and it has also revamped its recipe for Rubicon juice drinks, as well as launching three new Rockstar drinks.

Problems with these products were central to the firm’s July profit warning, analysts said.

John Moore, senior investment manager at Brewin Dolphin, said there was cause for optimism in today’s interim results, despite the sugar tax and bad weather denting AG Barr’s performance.

“Crucially, there is a clear plan of action for its Rockstar and Rubicon brands, which have had their problems and were a catalyst for the profits warning,” he said.

“Perhaps the most important indicator of management’s view of the long term is the rise in dividend and continuation of the share buyback programme – they suggest the bad news this year could be a temporary blip and AG Barr is back on track.”

Shore Capital also backed the company to recover from what it called a “notable setback”.

“We continue to believe that this should be seen in the context of an otherwise exemplary sustained track record on execution and delivery,” the broker said.

“We back Barr to rebuild from the revised base and we continue to view the company as a core holding amongst the UK consumer universe.”

Read more: Drinks giant Diageo invests £180m in greener African breweries

What AG Barr said

Chief executive Roger White said:

Our focus remains on delivering long-term growth. We have plans in place to address our specific brand related challenges and are ensuring that the business is appropriately scaled to perform in the current market. Despite continuing economic uncertainty we expect to meet the revised profit expectations communicated in July.

Main image: AG Barr CEO Roger White (credit: AG Barr)