AG Barr

[monabri]

There was an article in the Investors Chron today by Phil Oakley. It was titled "What to do about profit warnings".

AG BARR were one of the companies discussed.

https://www.investorschronicle.co.uk/co ... -warnings/

Mr Oakley discusses a conventional method of avoiding companies that might issue profit warnings by investing in highly profitable companies with a history of delivering predictable profits & cash flows "in good times and bad". The dilemma is that investors see these as "bond proxies" and pile in , pushing up the share price, resulting in a high P/E ratio. There are no guarantees though, case in point being AG Barr (P/E of 26 before yesterday).

His overall summary:-

"AG Barr is a good business that has proven to be very reliable, but its reputation has taken a big hit here. A 20 per cent downgrade to 2019 profit forecasts would still leave the shares on a forecast PE of 25 times at 642p a share. This is virtually unchanged from the pre-warning multiple. Given the damage to Barr’s reputation for dependability, a lower valuation seems warranted and therefore the risks to shareholders still seem quite high. "

[jackdaww]

Alas I bought them. Before reading everybody's comments this morning. I originally set a limit order at 624 before market open. This wasn't filled. I bought later on at 641.

Perhaps I'm a mug? The fundamentals are still very good, and IRN-BRU is a very well known brand. They now comprise about 1.66% of my foli.

This stockpicking is hard, perhaps I should move to trusts/funds etc.

Matt

That makes two of us then! I added a small tranche at 634p (avg). It can sit on the shelf pining for better days. I wouldn't be surprised if it was subject to a takeover bid (the revenge of BVIC?).

p.s. when Boris becomes PM he might even revoke the "sugar tax"!

==========================

me too at 630 . long term .

[TheMotorcycleBoy]

I wouldn't be surprised if it was subject to a takeover bid (the revenge of BVIC?).

Their cash reserve would certainly be considered a sweetener to some, if you'll pardon the pun.

p.s. when Boris becomes PM he might even revoke the "sugar tax"!

He does look like he doesn't mind the odd IRN BRU every once in a while!

I do not think anyone who bought today will need to beat themselves up. This is still a good company and probably only suffering a blip. Hang in there for two or three years and see how they do.

Thanks Dod. Good advice. No crystal ball and all that.

Matt

[kempiejon]

I do not think anyone who bought today will need to beat themselves up. This is still a good company and probably only suffering a blip. Hang in there for two or three years and see how they do.

Thanks Dod. Good advice. No crystal ball and all that.

Matt

Matt, was it last night's discussions of an over done fall that prompted today's buy? If so, may I observe, that in my experience reactive buys following potentially irrational drops are not usually worthwhile or significant over the longer term. It can be a profitable strategy for traders (You look like an investor to me) and your buys should out but I'm much less inclined to respond like that having observed I'm as well to take stock rather than rush.

[simoan]

Alas I bought them. Before reading everybody's comments this morning. I originally set a limit order at 624 before market open. This wasn't filled. I bought later on at 641.

Never let anyone's opinion on a BB sway you one way or the other. You need to be aware of factors that may influence your behaviour. I would recommend you read the excellent book by Dr. Robert Cialdini on this subject. You have to do your own research and make your own decisions based on your own investment criteria. The real problem is being anchored to the price the day before the warning and feeling like by buying you are "getting a bargain". You're not and very often the price will fall further over coming days and weeks as the new reality hits the market.

Perhaps I'm a mug? The fundamentals are still very good,

Are they? The problem is that after a profit warning all we know is that the fundamentals have changed. Profit warnings are often followed by further profit warnings in the future. Buying after a profit warning is not generally a good idea; in fact studies of profit warnings have shown that it is better to sell out on the first sign of trouble. However, not all profit warnings are created equal and if it was due to a fixable short-term event then I would generally hold on, or perhaps even buy more once the dust has settled. You need to decide what kind of warning this is...

No-one said the investing lark was easy!

All the best, Si

[simoan]

Matt,

It's worth having a read through the Stockopedia "Profit Warning Survival Guide":
https://www.stockopedia.com/books/profit-warnings/

It includes a quote by The Naked Trader, Robbie Burns:

"It’s crazy to buy into a company that has just produced a profit warning. And it’s crazy to hold onto one of your shares that has just issued one. It’s more likely that it will issue another one, and just because its share price has gone down doesn’t mean it won’t be going down some more !"

Food for thought...
All the best, Si

[westmoreland]

AG Barr is typical of the sort of stocks that have been bid up and up in recent years. it's clearly a quality company (albeit highly dependent on one brand only). it's chugging along, but CAGR of less than 2% revenues and 4% income in recent years, even without a profit downgrade, meant the shares were highly priced, priced for perfection.

just to add, a few months back before the shares went skywards, i was holding out for a lower opening price, which never came. i still think the shares are a bit pricy, given the profit downgrade.

[Dod101]

The shares are highly priced for good reason. No borrowings and £21 million in the Balance Sheet, ROCE of 21% for the last year and a family shareholding of about 16%. What more do you want? This is a conservatively run great little company which has hit a bump in the road.

Si may be right but may not be!

Dod

[westmoreland]

it's not a coca cola, nor is it growing quickly. as i said, i know it's a good company, because it's one that i considered investing in, but to get a good return, you need a decent entry price. one that protects you from unexpected events such as this.

what more do i want? certainly a more attractive valuation than 25, or even 31 times earnings for a slow growth company.

[Alaric]

The shares are highly priced for good reason.

According to dividendata.co.uk, the current dividend yield is 2.70% which is a little below the FTSE 250 average of 2.97% as of posting.

Five year and ten year dividend growth rates have been 8.60% and 9.04% respectively which goes some way towards explaining the previous high price.

Total Return according to the tools.morningstar site has been 9.14% (FTSE 100 8.52%) over 3 years, 2.59% over 5 years (FTSE 100 6.40%) and 13.29% over 10 years (FTSE 100 9.60%). But it's dropped 28.3% in a day, 32.3% in a month.

This is where we need an expert in charts to tell us the support level.

[simoan]

The shares are highly priced for good reason. No borrowings and £21 million in the Balance Sheet, ROCE of 21% for the last year and a family shareholding of about 16%. What more do you want? This is a conservatively run great little company which has hit a bump in the road.

Si may be right but may not be!

Dod

To be fair, we don't know how much cash they have currently as this was not mentioned in the update but then this was a full year profit warning only 5 months into the year, so really not great at all. They normally release a HY trading update at the beginning of August so may not have long to find out.

It's not a company I follow so I don't have a feel for how reliable the management are in their outlook statements. They seem to believe this is fixable but with some exceptional costs involved. Shareholders will now likely have to sit with fingers crossed until the Interims in late September and hope things have not got worse... If I were looking to buy I'd probably wait until then but in the meantime watch the weather in the north of the UK!

As for whether I'm right or wrong, that doesn't interest me. All that matters is that I'm right more often than I am wrong. That's how you make money in the stock market, isn't it?

All the best, Si

[Dod101]

I agree Si. I have no argument with anything you say on AGB. My feeling is that they will be somewhat embarrassed by the outlook and felt that they had to say something. They seem to me to be a totally honest and honourable lot. But then I tend to focus on culture more than on the numbers so I could be completely wrong. If I had some spare cash I might buy in to them if I had plans to anyway but I do not because I have a modest exposure via Caledonia Investments and Finsbury Growth and Income. They I think will be OK.

Dod

[simoan]

My feeling is that they will be somewhat embarrassed by the outlook and felt that they had to say something. They seem to me to be a totally honest and honourable lot. But then I tend to focus on culture more than on the numbers so I could be completely wrong...
Dod

This is interesting. Management culture is a really big thing for me and I don't invest in companies where management don't follow through on promises and where the outlook statements turn out to be hyped up nonsense. I also don't like where they are over re-numerated in relation to company profits and are constantly issuing themselves free share options.

AG Barr is clearly a financially sound, quality company, that is not in dispute. It's the type of company I would normally look to build up a long term holding in, however the profit miss is one thing but the cause is another. If the cause is maybe the first signs of a long term decline in the appeal of the brands, then it is still maybe very expensive at 600p or so. I will add it to my watchlist but have no interest in buying until I have seen the outlook statement at the interims in September.

All the best, Si

[Dod101]

Slip of the finger but I expect you meant over remunerated on your second line, not over re-numerated, although maybe you did. It is an interesting word.

Dod

[simoan]

Slip of the finger but I expect you meant over remunerated on your second line, not over re-numerated, although maybe you did. It is an interesting word.

Dod

Yes, sorry, I meant remunerated. I wondered why my spell checker rejected it so just added the hyphen! But that's the problem sometimes when half your brain is doing work things and the other typing a BB post

All the best, Si

[TheMotorcycleBoy]

Matt, was it last night's discussions of an over done fall that prompted today's buy?

Well yes, combined with "some" brief consideration of their brands+fundamentals and the fact they are in UkBuffetology and LindsellTrain Funds.

Never let anyone's opinion on a BB sway you one way or the other. You need to be aware of factors that may influence your behaviour.

Yes, fair comment. I think that I'm aware of my biggest behavioural problem, certainly re. investing. It's one of being too impatient, and the fear of "missing out". I'm kinda getting better (I think) with it, by doing more research and just only buying using pessimistic limit orders. But I guess the last couple of days I've been a bit crap, and probably under a lot of other stress (too much on at work, and with the family). Nothing majorly bad, just underresourced and badly supported job, stressful commute and teenage kids needing Dad's taxi, Dad's catering services (Mel back at work + no school bus for over-16s).

As a result I was too impatient and underresearched. That small BAG (£1050) holding can stay in my foli as a reminder to constantly remind me to be a little bit cooler with things!

However, not all profit warnings are created equal and if it was due to a fixable short-term event then I would generally hold on, or perhaps even buy more once the dust has settled. You need to decide what kind of warning this is...

Sure point taken. I've read too much of "The new Buffetology" recently, by his one-time daughter-in-law saying how WB likes to buy after a profit warning drop. But as you say you need to know what kind of warning it is. And nowadays I guess the big players know long before me!

It's worth having a read through the Stockopedia "Profit Warning Survival Guide":

It includes a quote by The Naked Trader, Robbie Burns:
"It’s crazy to buy into a company that has just produced a profit warning. And it’s crazy to hold onto one of your shares that has just issued one. It’s more likely that it will issue another one, and just because its share price has gone down doesn’t mean it won’t be going down some more !"

Si - please don't be offended by what I'm about to say, but I've really had my fill lately of "investment technique" associated literature. I'm starting to think that an investor's main issues are themselves and no amount of reading will necessarily help. It has to come from me, I think.

And re. Robbie Burns, I bought "The Naked Trader". He offers advice in that book - and then completely disregards his own teachings in real life! I've even chatted to him on email. He replied a couple of times. But he stopped replying when I asked why he had Dignity (DTY) in his foli (he publishes his live foli at his website), but it's Debt vs Profit ratio is completely out of his stated comfort zone he writes in his book! Also DTY was bought by him after what I believe was major profit warning (I think they fell from about £25 to £10 fairly soon - but don't quote me on that exactly).

So I'm now really sceptical of listening too much to these folk. I did also have an Investor Chronicle subscription. I cancelled that after 6 months. Phil Oakley seems to just churn out the same kind of articles about strong cash flow+earnings yield and bond proxies week in week out. He discusses Macdonalds and doesn't even mention their negative equity. Some other geezer (Chris Dillow?) always writes an article about interest rates, yield curves, TB yields, oncoming doom and recession, which just seems to get tweaked and touched up in accord with this week's ups and downs.

Sorry, I've waffled a bit. But I guess my point is that I think my biggest bugbears are impatient behaviour and a lack of any kind of quality information advantage.

Matt

PS. I find chatting online to you guys much more enlightening than many an investing book
PPS. Despite what I've said above I'll try to read that profit warning guide you linked after me tea!

[Dod101]

Matt

Reading so called investment gurus can be helpful but they all become variations on a theme. I found Peter Lynch helpful and Warren Buffet's earlier Letters very good. The later ones not so good. I use the IC to get ideas sometimes and it is often helpful to get their views on particular company results.

As you have discovered investing needs patience and you need to know yourself. That will come with investing experience and how you feel about bear markets. Then you do need patience!

Best of luck.

Dod

[simoan]

Never let anyone's opinion on a BB sway you one way or the other. You need to be aware of factors that may influence your behaviour.

Yes, fair comment. I think that I'm aware of my biggest behavioural problem, certainly re. investing. It's one of being too impatient, and the fear of "missing out".

Fear of missing out is a very common problem that most investors suffer from, me included. You need to fight that feeling! Making decisions with imperfect information and the feeling of time pressure never ends well - invest in haste, repent at leisure. It is often best to wait and do nothing, and if you miss the bus, another will be along in a while. In reality, no-one is putting up a "24 hour sale" sign and if you study the average profit warning you will see that after maybe an initial bounce, the price gradually continues to fall over the coming months.

But I guess the last couple of days I've been a bit crap, and probably under a lot of other stress (too much on at work, and with the family). Nothing majorly bad, just underresourced and badly supported job, stressful commute and teenage kids needing Dad's taxi, Dad's catering services (Mel back at work + no school bus for over-16s).

As a result I was too impatient and underresearched. That small BAG (£1050) holding can stay in my foli as a reminder to constantly remind me to be a little bit cooler with things!

You don't have to invest every hour of every day. If things are stretched elsewhere just forget about it for a while. Most money is made by doing nothing!

Si - please don't be offended by what I'm about to say, but I've really had my fill lately of "investment technique" associated literature. I'm starting to think that an investor's main issues are themselves and no amount of reading will necessarily help. It has to come from me, I think.

And re. Robbie Burns, I bought "The Naked Trader". He offers advice in that book - and then completely disregards his own teachings in real life! I've even chatted to him on email. He replied a couple of times. But he stopped replying when I asked why he had Dignity (DTY) in his foli (he publishes his live foli at his website), but it's Debt vs Profit ratio is completely out of his stated comfort zone he writes in his book! Also DTY was bought by him after what I believe was major profit warning (I think they fell from about £25 to £10 fairly soon - but don't quote me on that exactly).

For the record, I am not a follower of Robbie Burns and was merely using the quotation about profit warnings. He has an approach that works for him (and maybe his followers) but doesn't fit with me from what I understand of it. I have never read his books. The cover alone makes me want to puke!!

So I'm now really sceptical of listening too much to these folk. I did also have an Investor Chronicle subscription. I cancelled that after 6 months. Phil Oakley seems to just churn out the same kind of articles about strong cash flow+earnings yield and bond proxies week in week out. He discusses Macdonalds and doesn't even mention their negative equity. Some other geezer (Chris Dillow?) always writes an article about interest rates, yield curves, TB yields, oncoming doom and recession, which just seems to get tweaked and touched up in accord with this week's ups and downs.

As someone new to investing it's important to read up on various approaches to investing and decide what works for you. So it's worth seeing what other people are doing. I agree that once you understand a particular approach, such as Phil Oakley's, then after a short while it will get very repetitive. I am the same and get easily bored hearing the same thing over and over! However, every now and again there will be a nugget of information or an idea that you had not previously considered.

All the best, Si

[TheMotorcycleBoy]

Thanks guys, some good tips and advice here.

Matt

[SalvorHardin]

Back to A.G. Barr. Having had a closer look it seems as though A.G. Barr is doing something similar to what Coca-Cola did when they introduced "New Coke" in 1985, though this is in response to the sugar tax.

Coca-Cola introduced New Coke in response to how Pepsi was perceived in taste tests. The problem is that most of their consumer base didn't want their Coca-Cola taken away from them, and they voted with their wallets. Coca-Cola's researchers had never asked people how they would react if the new formula would replace the old formula and you could no longer buy your Coca-Cola. The result was a massive surge in people stockpiling Coca-Cola and terrible publicity for New Coke. If you've spent years building up your brand, then you say that you're going to get rid of it, you'd better be very careful.

Berkshire Hathaway's Charlie Munger commented on the New Coke debacle in his 1995 speech at Harvard University, "The Psychology of Human Misjudgment”. Here's the relevant section (whole speech linked below):

"The extreme business cake here was New Coke. Now Coca-Cola has the most valuable trademark in the world. We're the major shareholder. I think we understand that trademark. Coke has armies of brilliant engineers, lawyers, psychologists, advertising executives, and so forth. And they had a trademark on a flavor, and they'd spent better part of 100 years getting people to believe that trademark had all these intangible values, too. And people associate it with a flavor, so they were gonna tell people not that it was improved 'cause you can't improve a flavor. If a flavor's a matter of taste, you may improve a detergent or something, but telling you're gonna make a major change in a flavor, I mean … So they got this huge Deprival Super Reaction Syndrome."

https://www.youtube.com/watch?v=pqzcCfUglws

If you look on eBay there's a fair old market in old recipe Irn-Bru, with cans actually selling for around £3 each. A quick fix would be to reintroduce old formula Irn-bru (at a higher price to allow for the sugar tax) and see what happens. That's what Coca-Cola did when they reintroduced "Classic Coke".

Note that in the UK Coca-Cola responded to the sugar tax by reducing the size of their bottles and keeping the old recipe, rather than changing the recipe. The 330ml cans have generally gone up in price, though I've noticed more smaller cans in the supermarkets.