AG Barr prepares to mix its drinks

The Investment Column
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The Independent Online
AG Barr is that rather quaint institution, an independent British soft drinks company. As local lemonade producers and bottlers fall to the big marketing guns of giant groups such as Coca-Cola, Barr and its ilk are becoming a rare breed.

The Glasgow-based maker of Irn Bru has therefore done well to cling on to and actually increase its share of the market, which rose from 4.9 to 5.2 per cent last year as sales across the industry slumped 6 per cent after exceptional summer heat made 1995 a bumper year.

But 1996 was all about plastic and factories, both of which hit profits. Stripping out a pounds 1.42m exceptional restructuring charge last time, the pre-tax figure slipped from pounds 6m to pounds 5.04m in the 12 months to 26 October. A 50 per cent rise in the cost of PET, the plastic used to make bottles, added more than pounds 1m to costs in the year, while double running of factories during the opening of a new plant at Cumbernauld added a further pounds 1m.

The good news is that this year will be without either burden. The price of PET is back to where it was two-and-a-half years ago and Cumbernauld, which replaces three former factories, is fully operational. That will add around a quarter to existing capacity, which augurs well if the expected increase in consumer confidence this year spills over into soft drinks. Margins will also be augmented by cost savings worth pounds 1m in a full year from the new facility.

On top of that, Barr should see a significant reduction in its debt burden, which has climbed in the past two years under the impact of Cumbernauld. The forecast pounds 4m drop in borrowings from around pounds 12m at the year end should help cut an interest bill which soared from pounds 370,000 to pounds 1.04m last year.

Early signs are encouraging, with Barr recording an 8 per cent rise in sales for the first two months of the current year. Despite the sad demise of Irn Bru's inspired former Scottish advertising campaign, the strategy of promoting Scotland's other national drink seems to be working, with sales of the brand portfolio ahead. At the same time, own-brand sales through supermarkets are down.

This year will see the launch onto an unsuspecting English market of a ready-mixed Bell's whisky and Irn Bru concoction.

Robin Barr, the chairman whose family still controls around a quarter of the shares, is scathing about Richard Branson's attack on the buyout of Coca-Cola Schweppes Beverages, the market leader, by Coca-Cola, but admits the increasing stranglehold of the US giant could be a problem. Even so, profits of at least pounds 7m this year would put the shares, up 1.5p at 325p, on a multiple of just 13. That looks good value.

Cautious Treatt

disappoints

Essential oils blender Treatt has one of the more exotic sounding businesses on the stock market. As an investment over the past year, however, it has been anything but glamorous. From a high of almost 400p a year ago, it has been downhill all the way and a worse set of full figures than expected yesterday sent the shares another 20p lower to 150p.

Treatt was hit during the year by a collapse in the orange oil market after a drought-inspired hike in the price in 1995 triggered one-off stock gains. Orange oil, which Treatt sells on to food and fragrance manufacturers, accounts for about 20 per cent of the company's business and rapid falls in the price were the cause of heavy stock losses.

That was the main factor behind a slump in pre-tax profits from pounds 3.54m to pounds 1.52m, more than unwinding the one-off stock profits that had sent returns soaring from 1994's pounds 2m. Earnings per share fell from 23.6p to 11.3p, enough to cover a full-year dividend of 5.7p, up slightly from 1995's 5.6p.

The market had been warned about the sharp fall in the orange oil price last July so there were no surprises there. What upset the shares again yesterday was a downbeat current trading statement which signalled a slow- down in the steady world-wide growth in demand for essential oils. As a basic ingredient in a huge range of foods and fragrances, demand for these oils has been on an upward tack for years but cold weather last summer in Europe and the US cut consumption of a number of oil-consuming products such as yoghurt and ice cream and Treatt's customers continue to destock.

Arguably, that too can be seen as a one-off effect which doesn't really change the on-going bull case for Treatt's market niche. And on the basis of Panmure Gordon's 1997 forecast of pounds 2m, the shares now trade on a pretty undemanding price-earnings multiple of only 11.

But smaller companies that disappoint the market in this way can pay the price in rating terms for a long while longer than seems wholly fair. Treatt may well be cheap at this level, but until it becomes clear exactly what management means by the cautious tone of its trading statement, they are likely to remain so.

High hopes for

a hop by Toad

Toad, the car security group founded by biotechnology impresario Chris Evans, has hardly matched the expectations of those who hoped for a repeat of his success with Chiroscience. Shares in the drugs group have comfortably doubled since their 1994 stock market launch. By contrast, Toad has seen its shares slump from around 110p to yesterday's unchanged price of 84p.

The company may, at last, be about to take off, however. Yesterday saw the passing of three resolutions at an extraordinary meeting which marks something of a watershed for Toad. The decisions clear the way for last month's pounds 7.1m cash-raising, the arrival of Charles Parker as chief executive and the shares' move up to a full listing from the Alternative Investment Market.

The new money will be used to extend the chain of 17 installation depots by up to six more and add mobile units, but the most interesting development will be the launch, expected at the end of the year, of Toad's Actra "active travel system". If successful, this should help fulfil some of the company's promise as a vehicle technology group, rather than just an installer of car security gizmos, albeit sophisticated ones.

Linking up with bigger players in the mobile telephones industry, Toad is developing a vehicle tracking system based on the cellular telephone network that could prove a competition-beater. The system could provide a cheap means of route-finding for drivers, while providing the ultimate in security by semi-deactivating the car if it is stolen and then keeping track of it.

In the meantime, contracts with Ford Cellular, Mercedes, Volkswagen- Audi and PHH, for the 12 products already on the market could soon be producing annual revenue of pounds 4m to pounds 5m.

After clocking up an impressive pounds 2.46m loss on sales of pounds 2.71m in the first half of last year, Toad should move into profit next year. Worth a punt.

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