The Motley Fool

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

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.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

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. 

Speaking of smaller companies with great potential...

The high-calibre small-cap stock flying under the City’s radar

Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…

You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.

And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.

Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.

But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before!

Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!

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.