Raise a (non-alcoholic) toast to Nichols as it makes a return to the dividend list
Amid all the Covid uncertainty, the soft drinks firm’s decision is a welcome sign that the worst may be behind it, writes Russ Mould
THE declaration by Nichols, the soft drinks maker, of a 28p-a-share interim dividend last week made the firm one of a select band of companies to rejoin the dividend list following its earlier decision to cancel its final distribution for 2019.
The shift offers hope that the company is coming through the worst and its robust balance sheet should help it to tough out any further trading setbacks.
Management is now going to treat 2019 and 2020 as one single period when it comes to assessing the final dividend, which will be based on the overall financial performance over this two-year span.
Shareholders could therefore be in line for a further distribution next spring alongside the full-year results, even though trading clearly remains tough. First-half
sales fell by 17pc and operating profits by 77pc as demand for its fizzy and still drinks was affected by the closures of bars, pubs and restaurants during lockdowns. Africa was a bright spot and sales held up relatively well in the Middle East too.
Nichols’ profit momentum had already been hit by the impact on sales of the war in Yemen, Britain’s sugar tax and a similar levy in the Middle East, even before the pandemic provided yet another challenge.
As with many stocks right now, we have no idea whether earnings forecasts are even vaguely accurate. An expected price-to-earnings ratio of about 28 therefore does not mean very much. This is not to take a pop at the analysts: it is rather to reflect the huge number of variables to face the company and its incoming chief executive, Andrew Milne, the current chief operating officer, who will step up to the top job on Jan 1 next year. If the pandemic were to spread around Africa it would be another hit to demand for Nichols’ products, while the pace of recovery in developed markets such as Britain is difficult to predict, even as pubs and restaurants slowly start to reopen. However, the
Pick five or more stocks to make the biggest possible gain in three months and win the £20,000 first prize telegraph.co.uk/fantasy-fund balance sheet comes with a £47m cash pile, no debt and a pension obligation of just £1.9m.
As a result, Nichols should be able to hunker down and come through the pandemic and attendant economic downturn more comfortably than many other London-listed names.
The Aim-quoted concern can still be seen as a cornerstone of the smallercompany portion of any portfolio as its financial solidity, its record of doubledigit operating margins and lofty returns on capital during more normal economic circumstances underpin its ability to pay dividends again. Patience will be needed but the return to the dividend list offers grounds for encouragement. Hold.