Shares in beverages company Barr (LSE: BAG) have fallen by over 5% today due to a profit warning. The seller of brands such as Panda and Irn-Bru has experienced a challenging first half of the year, with poor weather, tough trading conditions and a strong comparator from last year causing its bottom line to disappoint during the period.
In fact, its pre-tax profit declined from £19m in the first half of 2014 to £17m in the first half of the current year, with revenue also down from £135m to £130m. As a result, it now expects profit for the full-year to be at a similar level to last year, which is below previous market expectations of a 6% rise. And, with price deflation being a very real threat to the soft drinks market in the near term, it looks as though AG Barr will continue to struggle in the short run.
Despite its shares falling by over 5% today, Barr still trades on a relatively rich valuation. For example, it has a price to earnings (P/E) ratio of 18.8 which, for a business that is not due to post a rise in its earnings this year, seems rather high. And, while bottom line growth of 6% is forecast for next year, the challenging trading conditions being encountered are showing little sign of abating, which means that the company’s share price could come under pressure in the months ahead.
Also enduring a challenging period is Unilever (LSE: ULVR). The slowdown in China’s growth rate is a cause for concern and, as a result, its forecasts for the full year have been revised down somewhat. The company is now expected to post a rise in earnings of 10% this year and 6% for next year – both of which are impressive numbers given the uncertain outlook for the global economy.
Clearly, there is scope for downward revisions and, like Barr, Unilever trades on a rather high P/E ratio of 19.7. But, unlike Barr, Unilever has a huge portfolio of major brands which command vast levels of customer loyalty. Furthermore, it is extremely well-diversified in terms of its regional exposure. As such, and while its shares may dip in the months ahead, Unilever remains a superb long term buy.
Similarly, Burberry (LSE: BRBY) is in a similar position to Unilever regarding the slowdown in China. However, Burberry is also a well-diversified business in terms of its geographical exposure and in recent years has become a true lifestyle brand. This has allowed it to extend its price point upwards and become a more resilient and stronger brand through appealing to men and women across a wide range of product categories.
Looking ahead, Burberry is expected to increase its earnings by 10% next year, which puts it on a price to earnings growth (PEG) ratio of just 1.6. This indicates that its shares have considerable upside and, in the long run, it seems likely to perform relatively well.