Berenberg cuts target price on Nichols following Middle East woes

Despite beverage maker Nichols continuing to make good progress in new markets, Berenberg was still concerned that blows to its Middle East operations as a result of the ongoing conflict would hurt profit growth across the firm as a whole.

With Vimto outperforming the UK soft drinks market, while its UK Out of Home business also expanded significantly on the back of the acquisitions of Noisy Drinks and DJ Drinks, as well as substantial organic growth, Berenberg considered Nichols to be "well placed" to continue building value.

However, as its Middle East business has been heavily affected by the conflict in Yemen, with Nichols being unable to ship Vimto concentrate to the country since December, something management does not anticipate resuming this year, leading to falling sales across the region, which generates much higher margins than the rest of the company, substantially impacting on its profitability.

Berenberg expects Nichols, which ended 2017 with £36m of net cash, to build up its cash position over the coming years and, as a result, use its "significant balance sheet capacity" on mergers and acquisitions to build its broad portfolio of products and further develop its frozen drinks range coming.

The analysts reiterated their 'hold' rating on Nichols but lowered their target price on the drinks company from 1,850p to 1,550p.