Which are the best FTSE-listed small beverage stocks to invest in right now?

Buying shares in the best small drinks maker might add a little fizz to a portfolio. Read on to find out which ones James J. McCombie would back for profits.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in beverage companies producing branded drinks that consumers love to knock back form a core component of many a portfolio. These types of companies may not usually take their shareholders on wild rides. However, steadier capital gains and dividends are usually on the cards. Add to that resilience to big price swings during recessions, and buying shares in the best small beverage company should be a rewarding experience in the long term.

Turning out something fizzy in a can and slapping a label on it does not, however, guarantee success. Business models differ, consumer tastes have to be considered and marketed to appropriately, and competition is ever-present. Therefore an investor still needs to do their research.

The larger beverage companies will probably be well known to investors. So, let’s venture off the beaten track and explore the drinks makers with market caps under £1bn. We have soft drinks makers AG Barr and Nichols (LSE:NICL), and C&C Group, which produces ciders, beers and spirits. Finally, we have Stock Spirits (LSE:STCK), which produces, you guessed it, spirits, but market mainly in Eastern Europe.

Recipes for success

The four companies will be ranked on three measures each for profitability and return on investment, two measures of balance sheet strength, two measures of growth (in revenue and EPS), and dividend yield. For each company, we will average their rankings, and the winner will be the one whose mean is the closet to four. The table below shows the relevant data for each of the companies.

 

AG Barr

Nichols

Stock Spirits

C&C Group

Ticker

BAG

NICL

STCK

CCR

Size

       

market cap (millions)

£515.33

£454.12

£435.00

£551.14

sales (millions)

£256

£147

€312

€1575

Profitability

       

gross margin

41.49%

47.6%

47.04%

32.19%

operating margin

14.90%

22.07%

15.22%

6.05%

net profit margin

11.65%

18.26%

10.77%

4.67%

Return on investment

       

return on investment

12.56%

21.72%

7.31%

6.86%

return on equity

14.25%

22.6%

10.68%

13.28%

return on assets

12.56%

18%

5.70%

4.74%

Annual dividend yield

3.55%

3.01%

4.22%

8.31%

Credit profile

       

Total debt/total equity

0.0379

0

0.3296

0.9958

current ratio

1.44

3.38

1.56

1.29

Growth (5 years)

       

revenue

-0.29%

7.76%

4.36%

23.18%

EPS

0.478%

13.64%

9.27%

-0.7664%

It looks like Nichols is the winner, based on the information collected, with an average score of 3.64. Second place goes to Stock Spirits with an average of 2.36, third to AG Barr with 2.27, and fourth to C&C Group with 1.72.

More pop less fizz

The data collected reflects the past performance of the companies analysed. Investment performance depends on the future. Therefore, broker recommendations can serve as a useful guide for the future. I have typically used the highest percentage of buy or outperform recommendations in picking the best prospect.

By this measure, Stock Spirits is the winner. As of 14 May, 100% of recommendations for the share were either buy or outperform. Nichols comes dead last; all five suggestions are that the stock should be held. These are, of course, smaller-cap stocks, and analyst coverage is relatively low, which may distort the results.

If we look at share price forecasts for the two stocks, the highest expectations for Nichols and Stock Spirits are 49.5% and 53.2% gains, respectively, over 12 months. There is not much separating the two stocks here, yet the analysis of the recommendations provides a stark difference. Something does not quite add up.

Sharing the best drink

Nichols recently announced it is suspending its dividend despite having £40m in the bank, which is enough to cover the dividend payment four times over, and zero debt. Investors will be disappointed by this, but it does point to Nichols having the edge over Stock Spirits in financial strength. 

Stock Spirits is by no means a slouch in the balance sheet department. However, given the coronavirus crisis, I would tend to favour the additional strength and past performance of Nichols. However, Stock Spirits looks like a solid company and is favoured by a few brokers. 

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.

James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended AG Barr and Nichols. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »