AG Barr, the maker of Irn-Bru which is currently in talks about a £1.4bn merger with Britvic, has been hit by rising sugar prices.
Half year profits fell from £16.2m to £14.9m, with raw material costs and the poor summer weather both having an impact. Barr said cash-conscious consumers were looking for cheap deals in supermarkets rather than buying a can from their local corner shop on impulse. It said:
We maintained our strategy of developing our brands for the long term and invested in a range of successful brand equity enhancing initiatives. However, the short term effect was that operating margins dropped by 151 basis points.
The talks with Britvic - down 0.1p at 363.9p - were continuing, the company said, with any merger offer needing to be made by 2 October. Its shares have slipped 3p to 448p after the update. Damian McNeela at Panmure Gordon said:
AG Barr's shares have risen by 13% year to date and have outperformed the FTSE All Share by 5.3% and are currently trading on 20 times PE.... for 2012. We believe that the majority of any potential synergies from the merger with Britvic are already reflected at current levels. We maintain our hold recommendation and 440p price target.
