Friday tips round-up: Pearson, AG Barr

6th Dec 2013 09:02

Pearson has a long tradition spanning multiple sectors. Yet from the original weird collection of business interests held by the founding Cowdray family the Financial Times is the only surviving unit. Might it too be one day sold off? Not likely any time soon. New Chief Executive Officer John Fallon recently remarked that he could not recall a time when it was "more closely connected to our overall strategy". Said strategy has turned Pearson into an education and digital services outfit focused on emerging markets. Hence, for example, the company´s drive into Brazil, which lags behind in adult English language training. In parallel, the firm has been hiving off a litany of units now considered non-core. Nevertheless, the resulting cash has been recycled quickly so talk of returning it to shareholders does not seem reasonable. "The stock sells on more than 15 times this year's earnings with the support of a yield of about 3.5%, still worth holding for the long-term nonetheless," the Times´ Tempus says. Christmas has historically been of the most important trading periods for AG Barr, the maker of fizzy drinks such as Irn Bru and Rubicon. What is a bit more exceptional is the fact that Thursday´s update from the company revealed it has managed to carry this hot summer´s sales momentum into the autumn period. Year-to-date its volumes have increased by 5.1%, an improvement on the 4.1% which has been logged by the wider market. Yes, people are drinking more, but the firm is also wining market share and no, that has not come from sacrificing margins. Neither will increased advertising spend hit margins, as it can be financed from the fall in the costs of its raw materials, broker Investec says. The result, naturally enough, is that the broker´s projected 6.7% rise in revenues should translate into meaningful growth in profits. Furthermore, AG Barr has invested in a new canning facility in Milton Keynes which will allow it to reduce costs on this front as well, given the new technology it incorporates - which will translate into lower average stock levels (with less cash tied up in inventories, and freeing up working capital). Despite that shares in the drinks maker have underperformed the wider FTSE 250 this year. The shares changed hands on Thursday on 21.4 times forecast earnings, falling to 19.7 times next year. The Daily Telegraph´s Questor team said the shares have a strong case as a core holding due to their resilient performance. That view remains the same, but they are still too rich, so Questor´s recommendation is hold. Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB