Nick Train has argued Irn-Bru maker AG Barr is “probably through the worst” after its share price slumped 61% in just over a year.
In the latest Lindsell Train Investment Trust monthly update, Train noted the soft drinks maker, which is 2.77% of the portfolio, hit a low of £3.80 during the month. In July 2019, its share price had been £9.80 but took a 25% slide on the back of a profit warning with this year’s Covid-19 pandemic and lockdown only compounding matters.
“To put it in perspective, if forecasts are to be believed, it looks like sales will fall 15% and profits 25% from their peaks,” the UK equities manager said.
While Irn-Bru sales have held up well during the coronavirus crisis, Train noted peripheral brands with an on-trade bias have suffered. “Purchasing patterns, locations, route to market and formats have all changed.” Retailers are putting more resources into promoting big brands, he said.
AG Barr has responded by writing down their investment in Strathmore and ceasing distribution of energy drink Rockstar.
“Following these portfolio changes the company is now probably through the worst having also reduced the cost base,” Train said. “It has £30m of net cash at its disposal, having signaled further prudence by passing its final dividend, leaving it maximum flexibility to respond to the situation as it refocuses its portfolio of products.”
At its September low, AG Barr’s enterprise value was 1.5x its 2021 projected sales, he said. By comparison, in July last year it was trading at 4.3x its 2020 sales.
But Train remains optimistic and the stock was one of the top three contributors to Lindsell Train Investment Trust performance during September, alongside Nintendo and Unilever. The share price ended September at £4.87 “up nicely from its lows and still looking good value given the strength of the core brand and the optionality it has for growth with its strong financial position”.
Lindsell Train Limited, Train’s boutique fund house, is one of the largest shareholders in AG Barr with a 13.9% stake. Rathbone Investment Management also holds a large stake.
In his review of 2019, he singled out AG Barr, alongside Pearson, as one of the biggest “shockers” in the portfolio. He attributed the company’s share price falls in part to “several years of wonderful gains”.
Pearson was one of the largest detractors from performance in September alongside Heineken and Laurent-Perrier.
See also: Nick Train initiates stake in Experian as investors fret over ‘expensive’ stocks
