Back in January, I came to the conclusion that IRN BRU producer AG Barr (LSE: BAG) was probably a better buy than tonic water specialist (and market darling) Fevertree, thanks mostly to the latter’s lofty valuation.
This isn’t to say, however, that there aren’t better opportunities for making money elsewhere in the market.
Before giving an example, let’s look through today’s solid (if not astounding) full-year numbers from the Barr business.
Resilient but pricey
Revenue rose 5.6% to £279m over the 52 weeks to 26 January with the company reporting a “significant increase in volume share” in the UK market. Pre-tax profit before exceptional items rose 2.5% to £45.2m and net cash grew 45% — higher than expected — to £21.8m.
Commenting on today’s results, CEO Roger White said its strategy and execution were “fit for purpose and resilient,” even if uncertainty abounds in the UK economy. He went on to say that the robustness of the company’s markets gives it “continued opportunities to grow.”
With 99% of its soft drinks portfolio now exempt, it would also appear clear that the introduction of the sugar drinks industry levy (otherwise known as the ‘sugar tax’) is unlikely to have a significant impact on the mid-cap’s ability to continue growing revenue and profits.
Despite all this and AG Barr’s well-earned status as a quality stock, I can’t necessarily see many investors jumping to own based on the current valuation.
A price-to-earnings (P/E) ratio of 23 for the next year is above its five-year average of just under 20 and it’s hard to see why the shares might fizz much higher in the near term.
Income investors are unlikely to be interested either. Today’s final dividend of 12.74p per share gives a total payout of 16.64p per share for the year. That may be 7% more than last year, but it still only gives a trailing yield of 2.2%.
As mentioned, I think there’s another company that could offer far better returns to investors.
CFD and spread-betting provider IG Group (LSE: IGG) had a shocker last week, falling 10% in value in just a couple of days. That came after revealing a 12% reduction in net trading revenue in Q3 compared to Q2 as a result of increased industry regulation.
Personally, I see this as a great opportunity to acquire a slice of a company that’s a global leader in what it does.
On a P/E of just 11 for the year, IG looks cheap considering its history of generating exceptional returns on the money it invests. There’s a truckload of cash on the balance sheet and the firm has also committed to returning 43.2p per share in the current financial year, which translates to a mouth-watering 8.5% at the time of writing.
Even if cash payouts were to be slightly reduced as a precautionary measure in the future, I’m confident the income on offer will still be worth grabbing while IG continues to adapt to the new trading environment. The fact that it still doesn’t attract anywhere near the same interest from short sellers as rival Plus 500 is telling too.
Is IG in a tricky spot? Yes. Could it get worse? Possibly. Do I expect it recover in time? Absolutely. And that’s why it’s now earned a place in my ISA portfolio.