AG Barr - made in Scotland from girders

The Irn-Bru maker’s shares will get further support from a lucrative merger. But are they cheap enough, and should you buy in? Phil Oakley investigates.

The Irn-Bru maker's shares will get further support from a lucrative merger, says Phil Oakley.

The business

AG Barr is based in Scotland and makes and sells soft drinks. Its main brands include the iconic Irn-Bru, Tizer, D'N'B, Rubicon, KA, St Clements juice drinks and Strathmore water. It also makes Orangina, Rockstar and Snapple under partnership agreements with their owners. It sells most of its drinks in Scotland and the north of England and has annual sales of just over £240m.

The history

The origins of the company can be traced back to 1830 when Robert Barr started a cork cutting business in Falkirk. The move into soft drinks came in 1875, when his son, also called Robert, started making them. His sons Robert F Barr and Andrew G Barr set up another soft drinks business in Glasgow in 1887. Andrew took over the running of the business in 1892 and the company became known as AG Barr.

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Having made a variety of flavoured soft drinks, the company created a new drink called Iron Brew in 1901. The drink became very popular, but was removed from sale during World War II as the government had to ration soft drink production due to a shortage of raw materials. The drink was renamed Irn-Bru and relaunched in 1947.

After listing on the stock exchange in 1965, Barr bought the Tizer drinks business in 1972. This gave it another great brand whilst making it easier to sell its drinks in England and Wales. The business has grown steadily over the years and has been boosted through the acquisition of other drinks companies and deals to make and sell other companies' soft drinks.

In recent times Irn-Bru has become more popular outside of Scotland and this has boosted profits. Barr's purchases of the Strathmore water business in 2006 and exotic drinks maker Rubicon in 2008 have also proven to be good buys. Now it seems that AG Barr is on the prowl again. It is in merger talks with rival drinks maker Britvic a tie-up would create one of Europe's leading soft drinks companies.

The chief executive

Roger White joined the company in 2002 as managing director. In 2004, he became the first person outside of the Barr family to be chief executive. He has done a very good job over the last decade, putting to use the lessons he learnt in his previous roles at food company Rank Hovis McDougall. Under White, AG Barr's market value has more than trebled. Compared with lots of other chief executives, his £524,000 pay packet looks pretty good value.

Should you buy the shares?

Washout summer weather and lots of competition means that the soft drinks market is a tough place to be right now. But AG Barr is doing well as Irn-Bru, Rubicon and Barr flavoured drinks are taking a bigger slice of the UK market. There's still lots of potential to keep the business growing especially in the south of England. A new factory and warehouse in Milton Keynes will help.

Barr makes good profits and boasts immaculate finances with very little debt. The trouble is, the stockmarket knows all this and has priced its shares at a very rich multiple of profits. Under normal circumstances, the high valuation would put us off. But these are interesting times for AG Barr. Rival Britvic is an underperforming business with some great brands, such as Robinsons and Tango, as well as some Pepsi and 7-Up licences.

It also has significant overseas businesses in Ireland and France. If White and his team can get their hands on Britvic's assets, it could spell very good news for AG Barr investors. Not only could they restore the fortunes of Britvic, but the chance to use its factories and warehouses could give a big boost to the sales of Barr's brands. We'll know if the deal will go ahead by the end of October. With Barr shareholders set to get a generous share of the combined company's profits if it does, the shares would look very tempting. Buy.

The numbers


Stockmarket code: BAG

Share price: 448p

Market cap: £522m

Net assets (July 2012): £125m

Net debt (July 2012): £11.3m

P/e (current year estimate): 19.8 times

Yield (prospective): 2.2%

What the analysts say

Buy: 2

Hold: 5

Sell: 0

Average price target: 440p

Directors' dealings


R White (CEO): 347,655

A Short (FD): 56,955

R Hanna (chairman): 150,000

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.


After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.


In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.