Here I will dive into an extended look at the quantitive and holistic analysis of one of the portfolios current holdings, A.G. Barr.

Historic Growth

  • Averaged 7% per annum growth in revenue. Between 2007-2016.
  • Averaged 12.5% per annum growth in EPS. Between 2007-2016.

Return on tangible capital employed

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Such a high ROTCE indicates that Barr is able to run both a capital light business and one that is profitable in relation to its capital intensity. This further explains the strong free cash flow position.

Enterprise Value / E.B.I.T.A

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An enterprise value to E.B.I.T.A of 13.3x certainly is not cheap by any measure, nonetheless what the investor must take into great consideration is the compounding ability of the company (high ROTCE). The inherent high quality nature of the business must be factored in here.

Price / earnings and Price / book value

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With earnings multiples and book value multiples as calculated, the investor here is being asked to pay for Barr’s expedtedgrowth. Nonetheless, this growth can be justified by the fact of the soft drinks industry having tailwinds of international growth opportunities and greater efficiency in operations. The former is certainly applicable to Barr.

Industry Market value

img_0271Statistia

The total UK soft drinks industry is market valued today (2016) at £ 16.4 Billion ( Euros 19.2 Billion).

  • The industry has seen an average annual compounded growth of 2.3% over the past 5 years approximately.

A.G. Barr’s Market Share and Market Value

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Therefore, based on these figures, one can approximate A.G. Barr to have an intrinsic market value of £ 1 Billion ( £ 8.60 per share) using a holistic mental model valuation approach.

This would suggest at the current market price of £ 600 Million, A.G. Barr is trading approximately at a 40% discount to its true market value.

Waiting Period

Taking Barr’s historic averaged revenue growth rate of 7% it would take approximately 8 years for Barr to reach its indicated market value ( £ 1 Billion). Or 5 years using Barr’s historic EPS growth rate of 12.5%. Henceforth, we can conclude that Barr is an investment opportunity certainly suited towards medium – long term investors, whom will receive an excellent return on capital invested overtime.

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Future Growth

  • Continue dominating in Scotland
  • Greater expansion of core brands across the UK and Internationally
  • Consistent innovation of products (healthier, low calorie & sugar, water brands)
  • Necessary and sizeable acquisitions (made easier by strong cash generation)
  • More efficient operations (fit for purpose program)

I strongly advise watching Mohnish Pabrai’s extended video on his Coca-Cola (NYSE: KO) analysis modelled from Warren Buffett and Charlie Munger.

Anything misunderstood, view the definitions here.

Thank you for reading,

Jordonlee W. Smith

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