Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
AG Barr (LSE:BAG)
Why we like it: “AG Barr (LSE: BAG) is best known as the manufacturer of IRN-BRU, the refreshment drink of choice in Scotland. The brand owes its prominence to over a century of popularity – and that heritage should, in our view, help the company grow revenue, volume and profits over the long term. We reckon companies that have demonstrated long-term staying power – such as brands that have survived for 100 years or more – boast an attractive kind of resilience.
“The company also says it has a “proven brand-building capability”, which is behind its M&A strategy. Recently, it has acquired brands and broadened its portfolio – including Boost Drinks and Rio Tropical – where it believes it can spearhead continued growth, while taking margins higher. The company’s strong balance sheet – it had £54m net cash at year-end – gives it the flexibility to continue acquire companies while making capital investments in the business.”
Why we like it now: AG Barr’s latest fiscal year was a successful one for the Cumbernauld-based business. It grew sales by roughly 26% to £400m (or 8% excluding acquisitions) while adjusted profits were 16% higher at £50.5m. Strong cash generation helped it fund the £12.3m acquisition of Rio as well as make £17.8m worth of improvements at its production sites. Its £54m net cash position means that it should be able to continue investing even amid potentially adverse trading conditions. While there’s some risk posed by the transition to a new CEO, the company’s long-term track record is remarkable, and the valuation appears reasonable for what we believe is a quality company.
