With the FTSE 100 struggling in recent years, many British investors have taken to the FTSE 250 to find attractive stocks. This is an index that regularly performs a couple of percentage points higher on an annualised basis. It shows more growth, basically, and that’s what we want when aiming for sizeable pension pots or a decent passive income.
Bubbling over
One stock that has been growing of late is AG Barr (LSE: BAG), the Scottish drinks manufacturer. The shares are up 29% over the past year, a bigger rise than three-quarters of Footsie constituents and four-fifths of FTSE 250 constituents. Pair that with a reasonable 2.49% dividend and this is a stock that investors may wish to consider for their portfolios.
While AG Barr isn’t exactly a household name, its products like Irn-Bru, Tizer along with those it sells under licence like Orangina and Rockstar surely are. Its flagship Irn-Bru outcompetes Coca-Cola in Scotland, a testament to the firm’s branding. But the firm has been performing well across the board with Rubicon a strong seller in recent updates.
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The company looks to be on the up and up. Sales and earnings are growing. Forecast earnings growth looks very handsome. While a price-to-earnings ratio of around 18 isn’t cheap, predicted EPS growth will bring that down to just 12 if forecasts up to 2027 are accurate. Analysts like the look of the stock too with all seven covering it marking it as a ‘Strong Buy’. Their average one-year price target is 750p, or a 20% rise.
A little flat?
As for negatives, the company is narrowly focused. Around 87% of sales come from soft drinks and a further 10% from “cocktail solutions”, which are soft drinks to mix with alcohol. Further to this, around 96% of sales are in the UK. The future of this company relies heavily on Britons retaining their sweet tooth and thirst for spirits and mixers. It’s telling that slow sales this year were partly attributed to a lack of summer sunshine on our fair islands.
Another danger is the impact of the sugar tax. Since the previous government slapped its levy on sugary soft drinks in 2018, manufacturers have been scrambling to deal with it. AG Barr changed the Irn-Bru recipe to have 50% less sugar. Then it brought back a version called Irn-Bru 1901 with the original recipe. Through it all, the share price is, despite recent strength, still a few percentage points below where it was when the levy was brought in.
The risks don’t end there either. Supply cost inflation is rising, carbon dioxide shortages continue and the sector itself is subject to cut-throat competition and potentially changing customer tastes. While I cannot say this is a bad company at all, on balance, it’s one I’d prefer to not to buy.
