COMMENT
Food & Drink For Your Portfolio

Last month, I took a look at three food producers, which I believed could perform well in a mature groceries market. Shares in two of the three companies are now higher than in November, while the third is treading water.

Premier Foods (LSE: PFD), which stood at 280p in November is now 8% better at 302p, and Northern Foods (LSE: NFDS), which was 149p then, has firmed 3% to 153p. Meanwhile, RHM (LSE: RHM) is little changed at 264p as it grapples with disappointing cake sales. Even still, the makers of Mr Kipling cakes said operating profits are up 8% in the first half, adding that its cost savings are still on target.

But perhaps now may be a good time to turn to drink instead of food. As a group, beverage companies are valued around 15 times earnings at the moment, which is in line with the market average. However, their dividend payouts are slightly higher than the average market yield of 3%.

One company that has caught my eye is Nichols (LSE: NICL), which owns the soft drinks brands Vimto and Panda. In June, Nichols said mid-year profits were up 12% thanks to continuing benefits from a major overhaul of the business that was carried out three years ago. Sales were higher too, up 24% to £30.5m. Interestingly, Vimto is growing its market share in what is generally regarded as a difficult soft-drinks market. Nichols also offers a refreshing 4.3% yield.

Another soft drink that is gaining market share is AG Barr's (LSE: BAG) Irn-Bru. In fact, Irn-Bru has long been the most popular soft drink in Scotland, outselling even Coca-Cola. Earlier this year, AG Barr said its interim profits edged up 6% though, rather disappointingly, revenues were flat at £66m. That said, the company has been increasing activity of its juice-based drinks, which have enjoyed 50% growth every six months over the last two years. According to current estimates, AG Barr is expected to report annual profits of £17m, valuing the company at 15 times earnings. With dividends of 30p per share pencilled in, the yield is a respectable 3.4%.

Finally, new market entrant Britvic (LSE: BVIC), which makes Robinsons, Tango, and Britvic soft drinks may be worth a visit too. The company said it intends to adopt a progressive dividend policy, and plans to recommend a payout of 45% of profits after tax next year. So, based on current profits after tax of £35m, a dividend payout of £15m for 2006 could be on the cards. This would suggest a yield of around 3%.

Unlike the food industry, which is only expected to grow in line with inflation, the soft drinks market is both dynamic and growing. In the UK alone, it is estimated to be worth a staggering £10b a year. Consequently, there is growth aplenty for the right company with the right product - preferably a sugar-free, healthy one!

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