Berenberg upgrades Irn-Bru maker AG Barr to 'buy'

Berenberg upgraded shares of Irn-Bru maker AG Barr on Monday to ‘buy’ from ‘hold’ and hiked the price target to 660p from 580p as it said the company’s transformation was underappreciated.

"AG Barr’s FY22 marked a year of transformation for the business: its portfolio is now of improved quality, has better margin potential and holds better growth prospects," Berenberg said.

"We think that the market is not giving AG Barr credit for its improvement, with the company trading on a trough multiple of 12.1x EV/EBIT or a cash-adjusted P/E of 15.6x, despite a forecasted FY22- FY25E earnings compound annual growth rate of 12.5%."

The bank said that while risks exist around cost inflation and demand elasticity, AG Barr is well positioned and its valuation provides an attractive margin of safety. It said AG Barr’s portfolio is well positioned for above-market growth.

"Rubicon and Irn-Bru remain underpenetrated, but strong rates of sale have led to points of distribution for these brands lifting by 11% and 6% respectively in 2021," it noted.

"Additionally, Funkin’s initial foray into the Australian market has been positive to date and AG Barr is exploring opportunities to export Funkin to the US, which - if successful - could provide material upside to shares."

At 1010 BST, the shares were up 1.5% at 548p.