Ramadan boosts Vimto

Nichols, the Merseyside-based maker of purple fizzy drinks,has an unexpected fan club in the Middle East.

There aren't that many ways for investors sitting inside the M25 to make money out of Ramadan, but buying shares in Nichols is definitely one of them. The Merseyside-based firm is best known for making Vimto, a purple fizzy drink, most popular among teenagers and grannies in the north of England. But Vimto also has an ardent following across the Middle East, where it is sold in a double-strength concentrate, making it an energy-boosting drink to break the fast during Islam's holy month.

Nichols has played to its following, using a string of provocative advertisements on Saudi television to link Vimto to Ramadan, just as mince pies are associated with Christmas in the UK. In one advertisement in 2007, the world is thrown into panic at the prospect of Vimto running out. A bottle is snatched from a man on his deathbed, while a woman has a dream that her stash of Vimto is missing and attacks her husband with a cricket bat.

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That Vimto should cater to a religious crowd is not as bizarre as all that, says The Times. The purple fruity beverage was originally concocted by John Noel Nichols at his shop in Timperley, Cheshire, to "appeal to the alcohol abstainers of the temperance movement".

It has been sold in Muslim countries for nearly a century and had a head start in the Arab world, which had a boycott on Coca-Cola until 1991.All this translates into a boost for Nichols around June, when Ramadan usually falls. The group's sales in Africa and the Middle East have more than tripled in the last ten years to over £20m. However, it would be misleading to assume that the majority of Nichols' business hinges on the Muslim diet. Revenue in the UK has been flat for four years, but still accounts for the majority of its business, with sales of £85m last year.

The firm, in which the Nichols family still has a 9% stake, is a "financial fortress", says Richard Beddard in Money Observer. It has £35m in cash and has not carried any debt for the last decade. But its concentration of sales in the UK leaves the company heavily exposed to the so-called "fat tax" levied on sugary drinks by Chancellor George Osborne in March. The company's shares fell more than 10% on the news, far more than its larger rivals, such as Pepsi and Coca-Cola, which earn a fraction of their sales in Britain.

Nichols has bounced back, but is still marginally cheaper than competitors, on 22 times forward earnings, versus 23 times for Coca-Cola. Nichols' acquisitions of other soft drinks brands, including Panda, have however fallen flat. Nichols is a sugary play on the Middle East, but its discount to its larger rivals is not yet wide enough to make it tempting.