1 UK growth stock to buy now

Announcing record profits and a special dividend this morning, Paul Summers thinks there’s a lot to like about this UK growth stock.

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Drinks firms AG Barr (LSE: BAG) has hitherto struggled to recapture its previous form. Back in mid-2019, shares in the owner of the IRN-BRU, Rubicon and Funkin brands were changing hands for almost 1,000p a pop. A couple of years later and they trade a little over half that value. Nevertheless, today’s interim results suggest this growth stock could finally be ready to fizz higher.

Strong trading

Revenue jumped 19.5% to £135.3m over the 27 weeks to the beginning of August following “strong trading.” As might be expected, a recovery in on-the-go consumption was seen as the UK emerged from its multiple lockdowns. New product launches also appear to have hit the spot. Barr’s Funkin brand of ready-to-drink cocktails logged growth of 150% as well. 

On a statutory basis, pre-tax profit rocketed 378.4% to a record £24.4m. Although this needs to be put in context, I take this as a sign the worst is most definitely over.  

Can this momentum continue?

The £600m-cap thinks it can. According to CEO Roger White, BAG is “on track to deliver strong full-year profit performance, slightly ahead of our 2019/20 pre-COVID level.” That last bit’s important. Beating last year’s numbers shouldn’t be a stretch, considering what was happening at the time. The real test is whether Barr is selling more drinks than it did the year before we were all told to stay behind our doors.

However, it’s the resumption of dividend payments that really makes me optimistic. This morning, it was announced that investors would receive an interim payout of 2p per share. That’s good in itself. However, BAG has also elected to pay holders a one-off special dividend of 10p per share. Such a move suggests real confidence on the part of management.

So why isn’t this growth stock rocketing?

Despite all this good news, shares in AG Barr were barely in positive territory early this morning. One explanation for this is that the company, like many others, is seeing “increased challenges” in its supply chain. Another could be BAG’s reflection that “a number of benefits” that supported profit growth in the first half would not be repeated.

There could be other reasons. Investors may be worried that sales at BAG may soften as the winter months arrive. Even if this isn’t the case, a resurgence in Covid infection levels could impact all stocks

For me however, these are short-term headwinds. Moreover, AG Barr’s reassuringly sound finances should allow it to weather any further storms. The £65.5m in net cash now on the balance sheet is just over 115% more than it had in its coffers this time last year.

Top-up opportunity

Having held the shares for a while now, I’m pleased to see that my patience in AG Barr is slowly being rewarded. If anything, today’s muted reaction gives me an opportunity to add more of this growth stock to my portfolio. A valuation of 20 times earnings still doesn’t seem excessive for a robust, quality company selling low-ticket items that people don’t think twice about buying.

I’m not the only one prepared to play the long game. Star fund manager Nick Train is the second-largest holder of the stock via his funds. If that’s not good company, I don’t know what is.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers own shares in AG Barr. The Motley Fool UK has recommended AG Barr. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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