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JPMorgan takes some of the fizz out of AG Barr, downgrades to 'underweight' on sugar levy concerns

Analysts at the US bank said they believe that the UK soft drink market will come under pressure after the introduction of the sugar levy, with consumers switching to healthier and low sugar drinks and demand for carbonates dropping by circa 1% in volumes
Can of Irn Bru
AG Barr's main soft drink IRN-BRU is at risk of losing customers after a rapid reformulation

JPMorgan Cazenove took some of the fizz out of AG Barr PLC (LON:BAG) today, downgrading their rating to 'underweight' from 'neutral' and chopping their price target to 570p from 630p, citing concerns over the introduction of the sugar levy in April.

In a note to clients, analysts at the US bank said they believe that the UK soft drinks market will come under pressure after the introduction of the sugar levy, with consumers switching to healthier and low sugar drinks and demand for carbonates dropping by circa 1% in volumes.

READ: AG Barr's full year profits grow as the Irn Bru maker slashes sugar content in drinks

The analysts added: “AG Barr has reformulated its portfolio and is currently 99% immune from the sugar levy; however with competition increasing we believe it is too small of a player and could face structurally lower margins as it invests more in pricing and innovation to support its current market position.”

They said the company’s main carbonated soft drink IRN-BRU, which makes up 42% of its sales, is at risk of losing customers from the rapid reformulation and up to 10% of revenue could be at risk of being rationalised by retailers.

JPMorgan analyst said they have cut their earnings estimates by 7% for full-year 2019 and by 10% for full-year 2020.

In early afternoon trading, AG Barr’s shares were 3.6% down at 636p.

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AG Barr Timeline

Article
September 27 2016

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