Invest in Scotland's other national drink.
In the 1980s and 1990s Coca-Cola and Pepsi fought what has become known as the "Cola Wars" as each company deliberately targeted the other with knocking-copy advertisements. Whilst these global giants dominate the carbonated soft drink market in almost every country their invasion of Scotland has been repelled by some ferocious competition, worthy of Robert the Bruce, from Glasgow's A.G. Barr (LSE: BAG) whose Irn-Bru occupies the number one spot in Scotland and has recently become the third best selling soft drink in the United Kingdom.
In recent years Barr has made a strong marketing push both south of the border and overseas so today it's easier than ever to find Irn-Bru in the rest of the United Kingdom. Investors might wish to consider piggybacking on the future success of Irn-Bru as it fights back against the colas!
A strong brand
Irn-Bru generates tremendous brand loyalty and is often referred to as "Scotland's other national drink." That's good news for shareholders; anything that can stand up to the titans of Coca-Cola and Pepsi must be doing something right.
Being "made in Scotland from girders", Irn-Bru has over the years reinforced both its Scottish identity and brand strength with numerous irreverent adverts which attract a lot of attention. One advert which drew more than 700 hundred complaints (that's is a lot in advertising complaint land) featured a cow on a billboard beside the slogan "When I'm a burger I want to be washed down with Irn-Bru." Naturally these controversy generate a lot of free publicity for Irn-Bru!
You can find a selection of Irn-Bru posters and other advertising on the company's website by following this link. Should you want to see some more television adverts there are dozens to be found on YouTube, many of which openly mock other drinks companies' advertising.
Irn-Bru is made from a 108-year old "secret recipe" using 32 different ingredients which is known to only two people. One of these is Robert Barr, the recently retired Chairman, who remains at his post as the chief Irn-Bru mixer. Shareholders need not panic as the recipe is kept in closely guarded bank vaults.
Irn-Bru is also an excellent cure for hangovers. The comedian Billy Connolly went so far as to dedicate a song on one of his albums to Mr & Mrs Barr "for saving my life on so many Sunday mornings."
Not Just Irn-Bru
Irn-Bru was launched in 1901 and whilst it remains Barr's flagship product, with over 50% of its sales coming from Scotland, the company does make some other drinks. Amongst Barr's many other brands are Rubicon fruit juices, Strathmore Mineral Water, Taut sports drink and Tizer. Barr is also the UK distributor for Orangina, the Rockstar line of energy drinks and Unilever's (LSE: ULVR) Lipton Iced Tea.
As part of its marketing push into England last year Irn-Bru became the soft drink sponsor for Rugby League's Super League as well as sponsoring British Sky Broadcasting's (LSE: BSY) coverage of the game on the Sky Sports channels. This has boosted Irn-Bru's profile in the North of England and Irn-Bru's share of the UK soft drinks' market increased by 5% in 2009.
Brewed For Profits
A.G. Barr's five year track record is shown in the table below. The dividends and earnings per share have been adjusted to allow for the 1-for-1 share split in September 2009.
| Year | 2008-09 | 2007-08 | 2006-07 | 2005-06 | 2004-05 |
|---|
| Diluted earnings per share | 44.1p | 42.8p | 34.1p | 31.9p | 30.4p |
| Dividend | 21.0p | 19.5p | 17.5p | 15.9p | 14.4p |
| Total sales (£m) | 169.7 | 148.4 | 141.9 | 128.8 | 127.2 |
Barr's interim results for 2009-10, for the six months to 1 August, showed earnings per share of 25.5p, up by 17.2%, whilst the interim dividend was increased by 7.8%. These figures demonstrate that Barr is another recession-resistant business and having grown dividends and earnings per share by about 45% over the last five years investors have put Barr's shares on a fairly high historic P/E ratio of just over 18, yielding 2.6%.
Barr, like many family-run firms, is conservatively financed and has only £35.7 million of borrowings compared to £200 million worth of assets.
Like many companies, Barr has closed its final salary pension scheme to new members and the most recent figure for the scheme deficit was £8.9 million, up from £5 million at the last valuation (August 2008), but this is easily manageable given that Barr's 2008/9 gross profits were £23.2 million.
The Future
There's plenty of scope for Barr to expand in the rest of the UK and the wider world. Irn-Bru is already sold in many countries and since its introduction to Russia in 1998, where Barr has partnered with its franchisee Pepsi Bottling Group, the Russians have taken to Irn-Bru to the point where Russia is one of its major markets.
A couple of days ago Barr announced that its total sales for 2009/10 would reach £200 million, showing that the company is continuing to expand strongly during difficult economic times.
It wouldn't be a surprise if Coca-Cola or Pepsi tried to bid for the company one day as Barr's market valuation of around £310 million is petty change for these firms. However, the protests that would result would make the objections to Kraft's bid for Cadbury (LSE: CBRY) seem like a tea party!
More from Tony Luckett:
> Tony owns shares in Kraft and Unilever and has been known to drink the occasional Irn-Bru.
