Investment Column: Sunny outlook to keep AG Barr sparkling
Tuesday 09 June 2009
Our view: Hold for now
Share price: 1,263p (-61p)
Looking through AG Barr's trading update yesterday you could be forgiven for thinking the recession is little more than a myth. The maker of Irn Bru and other soft drinks said that trading between February and the end of May had been strong, with total revenues up 22.5 per cent and like-for-like sales increasing by 7.9 per cent. Its chief executive, Roger White, says that, with the group's products costing less than £1, it is as immune from the recession as any other business.
Indeed, it is not economics and high finance that worries Mr White. Rather he frets much more about the weather, fearing that another summer like the last two (for those with short memories, the rain seemed ceaseless) would be more damaging than any prolonged downturn. Investors will be relieved, then, that the Met Office appears to be predicting a warm summer. What buyers will be hoping for most as a result is an improvement in the performance of the share price, which has grown only marginally in the last three months, despite equities investors generally having a super time with other stocks.
It is maybe because the shares are regarded as already being fairly valued that their growth has slowed. The group has been a top operational performer in the past year, but even the house broker, Investec, does not see the stock rising beyond 1,400p in the next year.
We like AG Barr, and while we see the group as defensive in nature, which we still think is the most important characteristic of any stock, there are clearly those that have greater potential for growth. For the true bears, and those looking to add some stability to an already racy looking portfolio, we would heartily recommend AG Barr. Otherwise, we reckon the shares are likely to pause around this level. Hold for now.
JD Sports Fashion
Our view: Buy
Share price: 470p (-1p)
JD Sports Fashion is not a sportswear chain. The company is keen that we are all aware of that, lest it is confused with the likes of JJB or Sports Direct, which suffered after selling fewer football shirts than expected following England's failure to qualify for last year's European championships.
We reckon investors have already worked out that JD is a fashion chain, and does not share the same problems, judging by the stock's 66 per cent increase in the last quarter.
Its finance director, Brian Small, says that one of the reasons for the growth is that the stock was severely undervalued before the surge three months ago. True, but investors beware: when asked if he thinks the shares are still cheap, or otherwise, Mr Small now says it is not for him to comment.
The group issued a heartening management statement yesterday, saying that underlying sales in the 17 weeks to the end of May were up 1.7 per cent, with sales at fashion fascia stores up a very creditable 4.6 per cent.
This no doubt encouraged the watchers at Seymour Pierce to reaffirm their "buy" rating, adding that despite the notable gains of the last few months, the "stock remains lowly rated at 6.4 times based on our 2009/10 forecast, falling to 5.7 times in the following year and putting it at significant discount both to Sports Direct and the general retail sector". Buy.
Our view: Buy
Share price: 545p (+32.5p)
For investors, yesterday's full-year numbers from Latchways, the designer and maker of fall protection safety systems (harnesses to stop people falling off big buildings, to you and me), were something of a mixed bag.
Of course, there were deserved cheers for the 10 per cent increase in the dividend. We have to say that there is some logic in its finance director Rex Orton's argument that it is better to give some of the £4.8m of net cash on the balance sheet back to investors "rather than have it in the bank doing nothing". We are also encouraged by the company's plans to target defensive industries such as the power utilities.
However, despite being well flagged a month ago, we were a little disappointed by the 3 per cent fall in operating profit, which itself was enhanced by beneficial currency movements. Latchways has long said it is a defensive bet because many of its products and sales are regulation-driven, but Mr Orton concedes that sales in the UK and US have slowed since the onset of the downturn.
That said, Latchways does clearly have defensive qualities, which should be accentuated by targeting clients with more defensive characteristics. Even though analysts at the house broker, Brewin Dolphin, cut their target price for the shares yesterday, we think there is probably still some juice left in them. Buy.
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