Broker snap: GSK brands are good opportunity for AG Barr, says Panmure

15th Jul 2013 09:30

Panmure Gordon has kept its 'hold' rating for AG Barr but said that a deal to buy GlaxoSmithKline's (GSK) soft drinks brands could be the catalyst needed for it to turn more positive.According to The Sunday Times, AG Barr could be teaming up with Private Equity (PE) to buy GSK's brands Lucozade and Ribena for around £1.0bn.Panmure said that rationale for the deal from AG's point of view is good as it gives it access to export markets and entry into the sports drink sub-category (via Lucozade), as well as adding a dilute and a range of ready-to-drink products to its portfolio (via Ribena). Also, cost savings could be "quite significant", the broker said."If AG Barr were to do a deal with Private Equity, the most likely, in our view, would see the acquired brands placed into a JV with PE. In this scenario AG Barr could take out a call option to buy PE out at some point in the future. Secondly PE could take a stake in Barr injecting the required equity into Barr for them to bid with."As for AG Barr's valuation, Panmure said the shares are trading at 19 times earnings, a premium to international peers in the sector."The implied valuation range for GSK's brands would suggest that it makes sense for AG Barr to team up with PE, and this could be the catalyst for us to become more positive on the shares. "However the deal structure will be crucial in determining the merits for equity investors and accordingly we retain our 'hold' recommendation for the time being."A 500p target price for AG Barr has been maintained.BC