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 Daily Telegraph - Business - - Business -

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.

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