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AG Barr Shares Plunge on Profit Warning

Drinks maker favoured by Nick Train blames wetter weather and weaker sales for lower-sugar drinks for a profit warning that has pushed shares down 27%

James Gard 16 July, 2019 | 10:35AM

Irn Bru AG Barr

FTSE 250 drinks firm AG Barr (BAG) is the latest company to issue a profit warning and suffer a severe share price reaction. Shares in the Irn Bru-maker lost almost a quarter of their value, dropping 236p to 632p as it warned full-year profits would be 20% lower than expected and sales 10% lower.

A drop in sales for some of the company’s new reduced-sugar drinks has been blamed for the profit warning, as well as wetter weather.

A J Bell’s investment director Russ Mould expects AG Barr to survive this current difficulty, particularly as the weather has recently improved and the company has proved nimble at adjusting its product range.

“AG Barr has a good reputation of being able to deal with challenges such as the sugar tax where it had to reformulate its products. One also has to think that the current sunny weather plays to AG Barr’s favour and so it may not be in a sticky patch for too long.”

Mould adds that AG Barr has been adept at tapping into consumer trends, such as the boom in energy drinks and alcohol-free cocktails.

But The Share Centre's Graham Spooner said that "there will be more than just an eyebrow raised" when a company based in Scotland blames the weather for a profit warning.

Some help for the Scottish-based drinks firm could come from an unexpected source: among his many promises in his pitch to be the next Prime Minister, Boris Johnson is looking at repealing the sugar tax, which was brought in to tackle childhood obesity but has forced up costs for manufacturers.

AG Barr shares have performed strongly in recent years, with a 30% over the past 12 months, and 21% annualised rise over three years, according to Morningstar data. The strong performance has not escaped the attention of some of Britain’s best-known fund managers: Nick Train, manager of the Gold-rated Lindsell Train UK Equity, who is known to favour firms unlikely to be disrupted by technological advances, is a fan of AG Barr. 

Lindsell Train Investment Trust (LTI) has one of the biggest stakes among active funds in AG Barr, which makes up more than 5% of the portfolio. The drinks firm makes up 1% of Lindsell Train UK Equity and 2% of closed-end Finsbury Growth and Income (FGT). The Finsbury trust has the highest rating that Morningstar can award: it has a Gold Analyst Rating and is also rated as five stars, which means that it has outperformed its peers and its benchmark.

Morningstar analysts say: “The crux of Train's investment philosophy lies in the belief that a highly concentrated portfolio of high-quality, cash-generative, strong, and easily understood business franchises will outperform the market and reduce volatility over the long term.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Finsbury Growth & Income Ord920.00 GBX-1.18
LF Lindsell Train UK Equity Acc484.81 GBP-0.16
Lindsell Train Ord1,383.07 GBP0.77

About Author

James Gard  is content editor for Morningstar.co.uk

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