Broker snap: AG Barr up with events after outperformance, Canaccord downgrades

28th May 2013 10:38

First-quarter results from AG Barr were 'very strong' according to Canaccord Genuity, but the broker has downgraded the soft drinks company from 'buy' to 'hold' following its recent outperformance and share gains.Revenues in the first 15 weeks of the fiscal year to May 12th were up 2.4%, the company reported on Tuesday, as it was able to shrug off the impact of the wet weather during the period.Canaccord analyst Wayne Brown said: "Not only does this compare favourably to the market place, which has seen flat revenues, but signifies a material outperformance to Britvic which saw its revenues down 4.2% in Great Britain over a similar time period. "We expect this performance to be evenly weighted between price and volumes versus Britvic seeing its carbonates volumes down c9.0%."Brown also highlighted that margins - "in line with expectations", according to AG Barr - have remained "resilient" despite increased competition. This "underpin[s] the group's long-term proven strategy of long-term brand building", he said.Looking ahead, the broker said that AG Barr could exceed its 7-10% average organic growth rate that it has achieved since 2008 due to the Milton Keynes plant it took possession of at the start of May. Management has guided to a low single-digit return on investment, but Brown highlighted additional revenue and operational gearing benefits, as well as cost savings from reduced distribution miles and lower inventory levels.In spite of all the positives, Canaccord has moved AG Barr's rating to 'hold' ahead of the Competition Commission's provisional findings into its proposed merger with Britvic in early June.Brown said that the shares are now "up with events" and has kept his target price of 570p.The stock was up 1.32% at 577.5p by 10:55.