Under normal circumstances, today I’d have been reporting on the full-year results from FTSE 250 branded soft drinks producer AG Barr (LSE: BAG.) But on Saturday (21 March), the Financial Conduct Authority (FCA) released a statement requesting listed companies (other than AIM) to delay such preliminary financial statements for “at least two weeks.”
Undeterred, most firms appear to be complying with the FCA’s request. But they’re releasing trading updates instead. So happily, we investors will still gain a little insight into how companies are coping in the current crisis.
Extraordinary times
These are extraordinary times for investors. The FCA wants to make sure companies don’t deliver financial reports that are out of date after preparing them before the coronavirus crisis escalated to its current proportions. I think that’s wise. But I’m also pleased companies are releasing honest updates and forward-looking statements instead.
AG Barr owns well-known brands such as IRN-BRU, Rubicon, Strathmore and Funkin. The stock’s been on my watch list for years. But the share price had been tearing upwards and the valuation always seemed as bubbly as the product. But in some ways, that’s not surprising because the business has cash-generating, defensive characteristics.
However, although the operating cash flow has been steady and robust, compared to earnings, revenue earnings and cash flow have been generally static over the past five years. The directors have pushed up the shareholder dividend incrementally over that period, but the expansion of the valuation appears to have driven the growth in the share price.
The stock is perky this morning. But even at 460p, it’s more than 50% down from its June 2019 peak. Suddenly, AG Barr is on my radar again. And the historic valuation indicators are beginning to look attractive.
Good trading
In today’s statement, the company reveals the trading year to 26 January finished with an “encouraging” performance, which “continued into the new year.” However, the directors acknowledge that the circumstances flowing from Covid-19 are “creating an unprecedented level of uncertainty.”
Within the organisation, those that can work from home are doing so. But staff in the firm’s factories, warehouses and logistics operations are carrying on with increased support from the company. Meanwhile, “no difficulties” have so far arisen with the supply chain or stockholding function. And the firm’s customers are “prioritising” take-home purchases. Yet sales through the hospitality sector were only around 10% of all revenue anyway.
The directors point to the firm’s strong balance sheet and the almost £11m cash in the bank at the end of the trading year. But, to be “prudent,” they’ve drawn down the firm’s full £60m revolving credit facilities to prepare the company for meeting any further challenges arising from the crisis. Overall, the company aims to maintain product supply “for as long as there is demand in the market and as long as Government guidance permits.”
Meanwhile, the historical dividend yield sits close to 3.5%. This one is well and truly on my ‘recovery’ watch list.