No debt and a long record of divi rises: after its summer stumble AG Barr is a buy

Although its explanations for last month’s profit warning were a little lame, the drinks firm’s problems look temporary, writes Russ Mould

A SHARE price plunge at soft drinks group AG Barr could represent a contrarian buying opportunity for long-term investors.

The Scottish firm is best known for its Irn-bru fizzy drink, Strathmore water and Rubicon fruit juices. These strong brands and well-invested manufacturing facilities help to drive high returns on capital and strong cash flow, features that underpin a dividend growth streak that stretches back to at least 2000.

Nor does the company have any debt. It ended its last financial year with nearly £22m in cash, offset by a modest £13.5m pension deficit and £6.6m of lease liabilities.

And yet the shares have slipped badly this summer, thanks to last month’s profit warning. Explanations involving a carbon

dioxide shortage last year, the sugar tax and this year’s unpredictable Caledonian weather were not entirely satisfactory and management also admitted to a change in priorities from volumes in 2018 to value in 2019.

First-half sales are expected to drop by 10pc year on year and full-year profits could fall by as much as a fifth.

Set against AG Barr’s impressive trading history, this profit stumble feels like a temporary setback rather than the result of an unsalvageable blunder. The weather will always be unpredictable and, more pertinently, higher prices for Irn-bru appear to be sticking.

Just as reassuringly, management aims to revitalise sales momentum in the Rockstar energy drink and Rubicon juices with both new product development and recipe improvements.

The healthy balance sheet means