The Motley Fool

Is A.G. Barr plc A Better Buy Than Diageo plc Or SABMiller plc?

Today’s third quarter results from A.G. Barr (LSE: BAG) were somewhat mixed. On the one hand, they were positive for investors in the company due to Barr being on-track to meet its full year expectations. However, the seller of soft drinks such as Irn Bru said that revenue growth slowed in the third quarter, with its top line for the eighteen weeks to 30 November falling by 0.6% on a like-for-like basis.

The key reasons for the fall are lower promotional activity, wholesaler destocking, and competitive pricing in the soft drinks market. Despite this, Barr’s focus on efficiencies means that its margins remain in-line with previous guidance and, as mentioned, its bottom line is due to meet full year expectations. As a result, shares in Barr are little changed following the update.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

An Attractive Sector

Of course, the beverages sector is highly appealing to investors. That’s because consumers are relatively loyal to certain brands of drinks and also tend to stick to well-known brands rather than generics or newly launched products. This means that the barriers to entry are higher than for most industries, which allows the incumbents to generate higher margins than they otherwise would.

In addition, the amount spent on beverages does not tend to fluctuate as much as the economic cycle and, as such, can mean better earnings visibility than for most sectors. With the ongoing rise of emerging markets, beverage companies can also provide a relatively simple means of accessing higher growth markets, which can equate to stronger profit growth than in many other industries.

Sector Peers

Clearly, the attraction of the beverage sector means that its constituents are rarely cheap when compared to the wider index. For example, Barr trades on a price to earnings (P/E) ratio of 20.6, which is significantly higher than the FTSE 100’s P/E ratio of 15.5. However, when compared to two of its sector peers, namely Diageo (LSE: DGE) (NYSE: DEO.US) and SABMiller (LSE: SAB), Barr seems to offer relatively good value.

For example, Diageo’s P/E is 20.5 but, unlike Barr, it is not expected to grow its bottom line in the current year. And, while SABMiller’s earnings are forecast to increase by 10% next year (versus 8% for Barr), its P/E ratio of 21.9 is relatively high and indicates that better value could be on offer at Barr.

Looking Ahead

Although Barr has endured a challenging third quarter, its performance as a business year-to-date remains impressive. For example, its 3.5% revenue rise since the start of the year is ahead of the wider soft drinks market. However, when it comes to brands and brand potential, Diageo and SABMiller seem to offer more diversity, more depth and more potential when it comes to long term growth.

Certainly, they are struggling to post exceptional earnings growth at the present time, as emerging market growth performance continues to disappoint in 2014. However, with such appealing brand portfolios and vast exposure to developing markets, the long term looks to be very bright for both SABMiller and, particularly, Diageo (due to its more premium stable of brands, which could outperform those of SABMiller as the global economy recovers).

So, while Barr could be worth buying at the present time, its two larger sector peers seem to offer the better investment potential in 2015 and beyond. As a result, they could outperform Barr over the medium term.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Peter Stephens has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.