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Nichols shares have fallen 16% since in-line H1 results, despite no changes to forecasts or surprises. The share price reaction looks punitive given delivery momentum, strong balance sheet and unchanged estimates. With a 44/56 H1/H2 split (vs 46/54 LY), the earnings profile offers no obvious risk. H1 execution was solid: LFL revenue +4%, EBIT +4%, margin +30bps to 15.9%, net cash +£8m to £61.6m and ROCE +330bps to 30.4%. ERP go-live, UK resilience and strong Africa growth (+29% LFL) underscored ongoing delivery against CMD priorities. At 17x FY25 P/E (16x FY26) and 11x EV/EBITDA (10x FY26) vs LR averages (21x/14.5x), valuation is compelling. With a potential 6% special DPS yield in FY26 and a 3% ordinary yield, the prospective c.9% total yield underpins our view that current levels offer an excellent entry point into a high-quality, defensive growth stock with an 8% 5-year EPS CAGR. Buy.
Nichols plc
Nichols’ showed resilient profit delivery and good cash generation. Ongoing margin-enhancing strategic pivots and innovation in core UK and African markets could unlock further upside in 2H. However, trading on 13.9x EV/EBITDA, the valuation looks full and we reiterate Hold.
H1 PBT was as expected, flat at £14.6m, reflecting anticipated H2 phasing of Middle East sales. UK Packaged sales were solid (+4%), but Africa was the standout performer (+17%; LFL +29% concentrate-adjusted), supporting stable PBT margins of 17.1%. Net cash rose c.£8m vs Dec’24 to £61.6m, reflecting cashflow strength. The performance shows good progress against CMD priorities. Three key H1 points: 1) ERP implementation was delivered successfully, highlighting strong execution and reassurance on operational delivery; 2) Africa’s momentum and Senegal hub progress support margin expansion; and 3) UK Packaged remains resilient, with Energy and NPD driving share. We maintain forecasts. Shares are up 8% YTD but at 13x FY25 EV/EBITDA (12x FY26 vs 14.5x LR avg.), valuation remains undemanding. Reiterate Buy, TP 1485p.
The Q1 update shows the business to continue to trade in line with expectations. We make two key points: (1) UK trading remains robust whilst International continues to make good strategic progress. (2) Tariff risk is relatively limited given <2% revenue exposure to the US; good mid-term supply contracts should mitigate any inflation headwinds whilst from a demand perspective, soft drinks are a defensive category. We leave our forecasts unchanged which show a 3-year EPS CAGR of 6% on prudent assumptions. Nichols continues to offer a best-in-class combination of organic growth and margin upside, track record of winning market share and exciting international growth prospects. The shares have fallen 9% since the March finals on market volatility and, trading on 18x P/E and 11x EV/EBITDA FY25e, are worth revisiting for quality/growth orientated investors. We remain buyers, with an unchanged 1485p TP.
NICL delivered 5.2% LFL revenue growth in FY24. The operating margin was +195bps, led by gross margin expansion of 340bps, partly offset by investment in supply chain, procurement, IT and marketing. UK packaged revenue growth of 6.3% was largely volume-driven, with price increases offset by higher promotions. NICL gained share in all categories, driven by innovation (where NICL is meeting its target of 8-10% of sales coming from products launched during the last two years) and distribution gains. The change of ERP system launched successfully last week. Middle East revenue growth of 9.6% was boosted by stock-building in Yemen as NICL switched to Aujan, its longstanding regional partner, in the hope of rebuilding local sales, which used to account for c.20% of regional revenue, versus only 5-6% now. Growth was also flattered by shipment phasing, with a container leaving just before the period end. In Africa, NICL is in the process of changing its model from import to local production. Phase 1 will see six markets supplied from the new plant recently built in Senegal by its partner (Millennium). Phase 2, supplying a further five markets, will follow Millennium’s construction of a new plant in Ivory Coast, scheduled to start in late 2025. NICL’s medium-term objective is to increase its market share in these 11 markets from 8% to 12%, through improved product availability and increased marketing support. In Senegal, NICL’s largest market in Africa, this is now supported by a small local office. NICL remains on the lookout for a brand that would complement Vimto, with £20-30m of revenue being the ideal range for an acquisition. If nothing is available at the right price, it will consider further special dividends.
We raise FY25E adj PBT by c.2%. Nichols trades on a premium to its peers, which is justified in our view given the capital-light model and expected EPS growth. Our TP is based on 20x FY25E PE and 12x EV/EBITDA. However, we believe the valuation is full and downgrade to Hold.
Nichols had a standout FY24, executing very well against strategic ambitions set out at the Nov CMD. EPS grew by 13.5% to 64.0p, 4% ahead of our estimate and the normal DPS has been increased by 13.4%. We upgrade our FY25 EPS by 5% and FY26 by 4%. We make 5 key points: 1) Great progress made towards 20% PBT margin in mid-term, with 18.2% achieved in FY24 (+230bps). 2) The dominant Packaged division is going great guns with 12% EBIT growth; and is more impactful on margins and ROCE given capital light nature. 3) In the absence of M&A we see scope for more shareholders returns - as a guide we estimate a 68p special DPS for FY26. 4) The outlook statement signals a positive start to FY25, and we expect further progress against strategic goals. 5) The strength of these results highlight Nichols has good momentum and should be capable of EPS of 92.5p by FY29 (+44% vs FY24) on target revenue of £225m. This growth conviction supports our Buy and raised 12m TP from 1440p to 1485p.
Trading remains in line with expectations, and we make no changes to forecasts. The shares are trading on 12.2x EV/EBITDA FY25E, and we maintain our 1,300p target price and Buy rating.
Nichols has delivered a solid full year trading update with 3.8% growth in its high margin Packaged business, driven by strong 5.4% growth in the UK and a return to growth as planned in 2H in International. FY24E adjusted PBT is expected to be in line with current market expectations (£30.1m), implying >10% growth. Closing cash balance is a strong £53.7m after having paid over £31m in dividends during the year. We think these results put the group on a strong footing for its 5-year ambition to grow sales by a third and adj. PBT by 50% by 2029E. We think the group has a credible growth plan, supported by market dynamics and cost efficiency initiatives, to achieve these targets. With strong FCF generation, the group should continue to deliver mid-single digit cash returns to shareholders via regular and special dividends, while also having the firepower for M&A to power further growth. BUY, with a raised 1,340p TP (from 1,260p) valuing the shares at a 20x forward PE multiple reflecting Nichols’s high free cash generation and RoCE model and strong profit growth prospects.
A positive and in line YE trading update from Nichols. It highlights the strategy (reinforced at the recent CMD) to grow the Packaged business and margins is delivering – FY24 PBT +11% and PBT margin +160bps. Performance in FY24 was underpinned by another strong showing from the dominant UK packaged business and good execution of the international growth strategy. The outlook for FY25 and FY26 is to maintain good top-line momentum and drive further margin enhancement. The shares are trading on a FY25 EV/EBITDA of 12.5x which is attractive for a capital light, branded drinks business with growing and diversified international earnings. In the current macro climate, Nichols’s defensive growth features is an added bonus too. Per the ambition set out at the CMD to grow PBT by 50% over the medium term, we have high conviction of >10% TSR per annum. We make no meaningful forecast changes and reiterate our Buy and 1440p TP. A Singer CM top-pick for 2025.
Nichols is now a much simpler and leaner business with reduced capital requirements, allowing it to better focus its ample resources on the core growth areas. We increase FY25/26E PBT/EPS by c.5%/c.7%. We also raise our TP from 1,250p to 1,300p and our rating from Add to Buy.
The CMD was well received with meaningful insight into strategic and financial ambitions. Management sees attractive growth in existing markets and a clear margin improvement opportunity. We see International as particularly exciting. Combined, this gives line of sight to 50% PBT growth to £45m in the mid-term and EPS of 92.5p (8.5% 5-year CAGR). Investors should also factor in a model that remains highly cash generative, thereby underpinning a robust dividend outlook and the possibility of further special DPS distribution and M&A in the future. Between FY25-30 we estimate scope for a significant c.£170m (40% of market cap) to be returned in total dividend distribution (ex M&A). Relative to the growth/TSR potential set out at the CMD, the rating is low vs historic levels. We maintain our Buy and 1440p TP (13x cal’25 EV/EBITDA).
Nichols is holding a Capital Markets Day today which will update on execution of the Group’s growth strategy. Ahead of this it has shared its medium-term financial ambitions - £225m revenue; 20% PBT margin (+250bps vs FY24e cons); and PBT of £45.0m (+50% vs FY24e cons). We will publish a more detailed note following the CMD, providing insight into opportunities/levers across the business units to drive faster growth, EPS scenario analysis and capital allocation options. The update comments that FY24 trading remains in line with management expectations. Whilst we make no forecast changes, we see the risk on the upside. Overall, we believe Nichols’ asset light, high margin and hugely cash generative model remains under appreciated on a cal’25 EV/EBITDA of 11x - Buy.
The company has made a strong start to the year, with the benefits of refocusing its cash commitments away from it OOH business into the core brands. Given the strong execution post business review, we increase our target price from 1,100p to 1,250p and upgrade from Hold to Add.
NICL sees scope for further gross margin recovery, potentially back into the 45-47% (pre-Covid/input cost inflation) range, implying 270-470bps of expansion from the 42.3% achieved in FY23. It is already making good progress, with +290bps of expansion in H124. We forecast +160bps in FY24 to 43.9%, and a recovery to 45.0% (i.e. the bottom of NICL’s target range) in FY26E, which looks conservative. We expect this to drive similar expansion of the operating margin, from 14.8% in FY23 to 17.6% in FY26E. There are three main drivers of this. First, the ongoing recovery of previous cost inflation, and discipline around promotional activity. Second, the benefits of NICL’s £9m ERP investment, which is expected to deliver a five-year payback, implying a c.£2m annual benefit. This would add 100bps to the FY26E margin if fully realised by then, before any reinvestment. Third, the phased change of business model in Africa, from exporting cans to exporting concentrate, will mechanically improve the percentage margin by reducing the booked revenue (and will improve availability). NICL has been expanding UK distribution, notably with Tesco and Sainsbury’s, in the convenience channel, and outside of its northern heartland. NPD continues to be a key driver, and NICL aims for this to reach 10% of UK sales. It supported its brands with a £3m marketing campaign, its biggest ever. UK packaged revenue was +5.3% in H124, despite the poor weather. This was largely volume-led, with price/mix only +0.4% as LSD price increases were offset by a return to a more normal level of promotions. It expects a similar rate of growth in H2, helped by recent distribution gains. We expect further special dividends, after the 54.8p announced on Wednesday, to keep cash around £50m, unless acquisitions are found.
Nichols has seen a strong improvement in profitability in 1H’24 with EBIT margins up +220bps yoy as inflation eased and the strategic review of the OoH division bears fruit. It is worth noting that the margin increase has been delivered despite revenue declines (timing) in the high gross margin Middle East business - reflecting GM% gains are much stronger on an underlying basis. PBT is up 18%, and the group is guiding for full year PBT to be slightly above current market expectations. Interim DPS has been raised 18%, in line with earnings, and with net cash balance of £70m, a special dividend of 54.8p, (a 5.5% yield) has been declared. We think Nichols remains well positioned to continue to deliver further sales and earnings momentum driven by improved demand environment in the UK, further improvements in Africa, efficiencies coming out of OoH and a recovery in the Middle East.
H1’24 was a period of considerable progress for Nichols, culminating in 18% PBT growth. There is also good news around announcement of a special dividend equivalent to a 5.5% yield. Positive trading has continued into H2 and management has raised FY PBT expectations. We upgrade FY24 by 4% and flow this through to FY25/FY26. We also raise our TP from 1320p to 1440p. Overall, these results demonstrate that numerous strategic initiatives from the last 18m are beginning to bear fruit and coupled with a benign input inflation environment, EBIT margin / forecast momentum is returning to the equity story. The stock is trading on a FY24 EV/EBITDA of 10.6x falling to 9.5x, which fails to reflect the progress and prospects Buy.
The AGM/Q1 update indicates trading has been in line with management expectations. The UK Packaged business has got off to a strong start, with excellent execution against the strategic growth plan. Whilst international progress in Q1 was held back by phasing of shipments and tough comps, FY profitability is expected to grow. With no change to FY PBT expectations, we leave our cautiously set forecasts unchanged. Overall, Nichols deserves a closer look. At the recent finals it clearly laid out the foundations and strategic pillars for stronger growth, whilst a cash rich BS offers optionality. We maintain a Buy rating and 1320p TP.
Nichols (NICL) has issued an in line Q1 update, with no changes to FY24 expectations. UK Packaged revenue (the biggest segment) was up 6.8%, with volume growth of 4.4%. International revenue is in line with expectations, with the timing of Ramadan impacting performance. We maintain our BUY recommendation and 1,260p target price. Long-term investment case – We recently initiated coverage on NICL with a Buy recommendation, with our long-term investment case resting on four key points. These are: (i) Vimto is a popular brand that has generally outperformed the market, which we believe has led to market share gains; (ii) NICL has a strong history of cash generation which we believe will continue; (iii) NICL operates an asset light business model, giving an advantage over peers; and (iv) there is a margin recovery story in play with margins being depressed since the start of COVID. Other – Cost inflation is expected to be low single digit for FY24. There has been no change in consumer behavior. NICL are not seeing any real impact from the Red Sea disruption, with the company still able to get product into the region. Capital allocation – NICL is a cash generative business, with cash at c.£73m at the end of Q1 FY24. Management are keen to perform M&A, targeting brands that generate revenue of £8m-£10m, and have a healthy gross profit margin. There is also potential for either a special dividend or share buyback in H2 FY24. Forecasts – We make no changes to our forecasts given expectations are unchanged for FY24.
NICL's FY23 results showed good progress made as the Packaged business continued to drive growth through product innovation and geographic expansion. Inflationary pressures were largely mitigated and the benefits from the restructuring of the Out of Home (OoH) business are starting to come through, leading to improved profitability. Free cash flow generation was very strong in the year, resulting in an improved net cash position of £67.0m (vs £56.3m at end-FY22). Given the high levels of cash on the balance sheet, management is assessing capital allocation options, including continued investment in the business, returns to shareholders and M&A opportunities.
Nichols’ FY23 results came in slightly ahead of expectations at the adj PBT level reflecting a better-than-expected profit performance in the Out of Home business from the early realisation of benefits from the strategic review. Momentum continues in the international business, led by Africa with f
FY23 saw 1.3% revenue growth in UK Packaged and 16.8% in International, giving 6.1% growth in Packaged and 3.5% overall, including a 3.4% decline in Out of Home (OoH). Volumes declined by 5%, with an improved trend in H2 as promotional spend was increased. Group operating margin was down 10bps, with Packaged flat, OoH +380bps, and Central costs rising due to a mixture of inflation and investment in additional capability (e.g., an expanded procurement team). Marketing investment was increased by £1m. OoH has been put on firmer footing, with a focus on profitability and the aim of getting operating margin to 14-15% (from 11.6% in FY23) in FY24 or soon after. NICL has improved efficiency by tendering for production and distribution, with the latter leading to improved service levels and therefore availability. Further improvements should come from the switch to SAP, where FY24 will be the heaviest year for investment, with £5m of exceptional costs expected. NICL has acknowledged that £67m of net cash is excessive and it plans to start returning surplus cash to shareholders within the next year. This will be consistent with avoiding debt, being able to invest in the existing business, and retaining the ability to make up to one acquisition each year. Acquisitions would probably be in the UK market, where NICL is keen to access growth categories such as health and wellness, functional drinks, and premium cordials & mixers, where the Vimto brand would not resonate. This would strengthen its proposition to the supermarkets. It is ideally looking for brands with current revenue in the £8-10m range with good gross margins that are delivering strong growth but that would benefit from wider distribution.
We make no changes to forecasts – the company is trading on a slight premium to its peers, which we consider justified given the capital-light model and expected revenue and margin growth. Our 1,100p target price is based on applying 19x PE and 11x EV/EBITDA to our FY24E earnings. We reiterate our Hold rating.
Nichols (NICL) has issued FY results, with a small beat at the PBT level (£27.2m vs PGe £26.5m). FY24 trading has started well, trading in line with management expectations, with the business primed for growth following the strategic review of the Out of Home segment. We also note that inflationary cost pressures are abating in the UK. We maintain our BUY recommendation and target price of 1,260p. Long-term investment case – We recently initiated coverage on NICL with a Buy recommendation, with our long-term investment case resting on four key points. These are: (i) Vimto is a popular brand that has generally outperformed the market, which we believe has led to market share gains; (ii) NICL has a strong history of cash generation which we believe will continue; (iii) NICL operates an asset light business model, giving an advantage over peers; and (iv) there is a margin recovery story in play with margins being depressed since the start of COVID. Trading – International Packaged markets were the standout performers with double digit revenue growth across all key markets. In the Middle East, revenue grew by c.10%, in Africa revenue grew by c.18% and across the Rest of the World, revenue grew by c.27%. In the UK packaged, revenue grew by c.1%. Forecasts – We make no changes to our FY24 and FY25 forecasts. For FY26E, we assume Packaged revenue grows c.6.5% and Out of Home revenue grows by c.2.5%. Valuation – We make no changes to our valuation methodology, applying a 19.6x PE multiple to our FY25E adjusted EPS estimate of 64.3p. This gives an unchanged target price of 1,260p.
Nichols has reported a strong set of finals, growing PBT by 9% y/y to £27.2m £0.2m ahead of our forecast. The results show: (i) good execution against the strategic plan to grow the higher margin Packaged business; (ii) continued momentum in International (+17% revenue); (iii) very good progress in implementing the OoH restructuring; and (iv) mitigation of significant inflation headwinds. The business is now well set-up for the future with a clear strategy set out with these results to accelerate growth and potentially return some of the surplus cash. Current trading is in line with expectations, and we make minimal changes to our forecasts. Our recommendation remains a Buy with a 1320p TP.
With its strong brand (we have been a big fan of Vimto since childhood), impressive cash generation (FCF conversion typically greater than 70%) and asset light business model, there is plenty to admire at Nichols (NICL). NICL is primed to grow, with the recent positive trading update highlighting good progress against the long-term growth strategy. We initiate with a BUY recommendation and a target price of 1,260p, representing c.28% upside. Growth opportunities: Vimto is the number two squash brand in the UK. In the squash category, Vimto has generally outperformed the market since FY21 on both a value and volume perspective (except for HY23 – with the company taking actions to protect margins). We believe this has overall led to market share gains which we believe are likely to continue. We also note that both the Middle East and Africa packaged segments have performed strongly and provide NICL further growth opportunities. Margins: NICL has historically generated high margins, with gross profit margins mid to high 40s% and operating margins in the low 20s%. Despite margins being depressed since the start of COVID, we believe there is a margin recovery story in play, with the potential for gross margins to recover to mid-40s% and operating margins to the high teens. Cash generation: NICL has a strong history of cash generation, which we believe will continue. Since FY18, free cash flow, in absolute terms, has been greater than c.£15m per annum. FCF conversion has been greater than 70% for each year. We also note that NICL has no bank debt and is sitting on £67m of cash. Valuation: We arrive at our target price by applying a PE multiple of 19.6x to our FY25E adjusted EPS estimate of 64.3p. The 19.6x PE multiple is in line with the long-term 2-year forward PE average pre-COVID. We note that NICL is cheap compared to historical averages on both a PE and EV/EBITDA perspective and cheap on all metrics compared to valuation peers.
This has been a year of significant change for the company, so to have delivered ahead of expectations is a good performance in our view. Given the valuation vs peers and the early stage of the year, we maintain our Hold recommendation and 1,100p target price.
Nichols has released an ahead of expectations FY update - a highly pleasing outcome given various headwinds over 2023. International was once again the standout performer whilst the OoH reset delivered benefits earlier than expected. We upgrade our FY23 PBT by 4% (7% cumulative since July) and conservatively nudge up FY24 by 2%. We also lift our 12m TP to 1320p (from 1240p). Following a difficult few years, we firmly feel Nichols has turned the corner. It enters 2024 with good momentum, inflationary pressures moderating and a more simplified strategy to revive growth. In this context we feel there is good value at current levels. The shares on 11.5x EV/EBITDA are trading at a 20% discount to the long-run average - Buy.
We welcome today’s news of finding a permanent CFO with extensive PLC and financial experience. There is also a NED change. There is no new trading related comment but with an implied flat H2 PBT required to hit our FY23 PBT forecast, we feel comfortable with our estimates. Having successfully navigated various covid and input cost headwinds as well as right-sizing OOH, we see Nichols now entering a growth phase. It has a clear strategic focus on developing the core Vimto business in the UK and internationally and leveraging its strong net cash position. Trading on a FY24 EV/EBITDA of 9x for an international / branded soft-drinks business the shares are excellent value. We reiterate our Buy and 1,240p TP.
Nichols has a simple but effective business model with high returns on capital and an excellent track record of distribution. We believe renewed focus on its international division could reignite growth. We initiate with a Hold rating and a 1150p target price.
Nichols (NICL) yesterday reported its H123 results to 30 June. Revenue was +6.6%, with International the strongest performer at +24.6% (Middle East +17.5%, Africa +26.1%, RoW +29.8%). UK packaged growth was more modest at +4.5% (despite mid-teens price increases) as protecting profits took priority over maintaining volumes. Out of Home revenue fell by 3.5% as NICL withdrew from unprofitable segments and customers as it targets a 10-12% operating margin from this division (vs. 9% in H123, excluding reformulation costs). Gross margin was down 170bps and operating margin down 60bps as NICL passed on COGS inflation in absolute terms rather than attempting to maintain percentage margins, given the competitive nature of the category. Adjusted PBT grew by £1.0m (or 9%), helped by interest income rising by £0.7m due to higher rates on its substantial (£56m) cash balance. EPS growth was lower at 3.6% as the tax rate increased from 19.5% to 23.8% due to the higher corporation tax rate. DPS was up 1.6% as cover was maintained at 2x. NICL’s expectations for FY23 remain unchanged, with the company citing consensus PBT of £25.2m. NICL expects its input costs to be broadly flat in H2 versus H1 and, having successfully passed on cost inflation thus far, is not looking for further price increases. Indeed, it has recently increased its promotional activity, having dialled this back during the period of very high cost-inflation, and has seen a positive volume reaction. NICL plans to switch to a new ERP system in late 2024, from what sounds like a very old existing system, which should deliver significant efficiency benefits. NICL remains on the lookout for acquisition opportunities, targeting relatively early-stage UK brands to complement its existing portfolio. We have upgraded our FY23E/FY24E PBT forecasts by 5%/3% respectively.
Nichols has had a good H1, delivering financial and strategic progress and maintaining strong international momentum. Revenue grew by 7% and this flowed through to 9% at the adj. PBT level. These results highlight the strength of the business model and its resilient / diversified market position. We are at the early stages of seeing a renewed focus on the Packaged business to drive growth and the interims reinforce the attractions in this area. OoH is firmly on track to deliver the targeted benefits of the strategic reset. We upgrade our PBT estimates by 3% and maintain a Buy. For a branded soft drinks business which is cash rich with an excellent heritage and prospects of higher profits, a FY24 EV/EBITDA rating of 10x is attractive.
Meeting Notes - Jul 04 2023
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Interim CFO announced today, David Taylor formerly of Churchill China and who we know well. A good pair of hands with plenty of PLC pedigree and experience in running a multi-national consumer business. Further common touch points being familiarity of Nichols’ customers and a large family shareholding on the register. Overall, we welcome today’s news as it removes an area of uncertainty as Nichols looks to implement the business transformation programme post the OoH strategic review, maintain positive momentum in the Packaged business and commence an ERP upgrade. The AGM update in April signalled a good start to FY23 with Q1 sales up 4.2%. We expect good momentum to have continued into Q2, led by International, with the UK focus remaining on value over volume and executing the OoH strategic changes / cost savings. The recent hot weather will have boosted Q2 trading. We note recent easing of inflationary pressures around aluminium and energy costs and while sugar prices have further risen, Nichols has forward cover until Q4. Next news is interims in July and these are expected to be solid. Shares are up 7% since the March finals, but for a branded drinks business remain good value on 10x FY24 EV/EBITDA,15x cash-adjusted P/E and a 6% FCF yield.
A solid Q1’23 update from Nichols today with revenue up 4.2% vs a stiff 29% comp. International was the standout feature, led by good momentum being sustained in Africa reinforcing Nichols’ geographic diversity. Inflation continues to be effectively managed. The other main news is the resignation of the CFO. In our view, post the successful OoH strategic review, he leaves Nichols on a much stronger strategic and financial footing. A search for a successor has commenced. With full year PBT expectations remaining unchanged, we make no forecast changes. Overall, Nichols looks undervalued on a 10.7x FY24 EV/EBITDA for a branded drinks business, is performing well and operationally in a good position to drive profitability. BS strength provides ongoing M&A optionality to expedite growth Buy with a 1240p TP.
Solid year of recovery Full-year results from Nichols are in line with expectations. Adj PBT was £25m (vs our forecast of £25.2m and FY22 £21.8m) with EPS at 55.4p and a FY dividend of 27.7p (+19.9%). The revenue line was 14.3% ahead, with strong UK (13.7%) and International (16.1%) growth. In the UK, the performance was led by the Out of Home (OOH) market, which was up 42.8% as it recovered from COVID. The UK packaged revenue was up by a more modest 2.9% - behind this there was a good Stills performance, but carbonates was more challenging, with volumes down 16% as the group protected margins. Cost pressure offset Margins were held at 15.1% in the year, which indicated the group has managed the inflationary cost environment. This was assisted by the move to a new packing contract, which helped reduce bottling costs in the year. There was an exceptional charge of £11.1m in the period – this was anticipated (goodwill write-down) and reflects the strategic review of the OOH operations. The actions to improve margins in OOH will be implemented through 2023 (exiting unprofitable contracts, simplifying the business to cut costs) and with the results expected to feed through in FY24. Looking to hold profits FY23. This year the company reports it is trading in line with expectations. It has indicated that it expects to deliver FY23 PBT in line with FY22 (£25m) with consensus at £25.1m. INVE FY23E £24.9m, EPS 51.7p. With the OOH improvement expected in FY24, we expect better progress.
With the FY22 outcome well trailed at the Jan y/e update, todays finals are in line. The standout feature is Vimto International growing by 16% - reinforcing Nichols geographical strength. News around a leaner/more profitable OoH business post the strategic review is welcome, but what is clear is that the dominant Packaged business is where the strategic focus and capital allocation will reside going forward. It generates virtually all the profits, is geographically diversified and offers the best organic and M&A prospects. Whilst we make no changes to our PBT forecasts, we see upside risk and a clear path to higher profitability / FCF in the next 3 years. Given this and expectation of inflationary / consumer headwins abating on a 6m view, the shares on a 9x FY24 EV/EBITDA,14x cash-adjusted P/E and a 6% FCF yield are excellent value for investors seeking a quality consumer play with high brand equity. An M&A deal to expedite growth will clearly show management intent Buy with a 1240p TP.
Nichols’ FY22 trading update provided revenue data and confirmed the group expects to report PBT in line with market expectations. On the top line, the group has delivered 14% growth overall, which reflects a strong International performance (+15%) plus the recovery in the Out of Home market. Sales in this category were up 43% in the full year, but this was largely weighted to 1H, with the revenue growth slowing to a more normal 5% in 2H. UK Packaged showed more modest growth, with Nielsen data showing an increase of 3.4% in the Vimto brand value to December 3, 2022. Our full-year PBT of £25.2m shows EBIT margins holding steady vs FY21 at 15.2%, indicating the group has been able to offset/mitigate the inflationary pressures seen in FY22. It changed a bottling relationship in the year, which is likely to have helped to some degree. During the past year, a review has been underway into the Out of Home (OOH) business, which saw returns impacted significantly in the pandemic. Despite revenues recovering, they still sit below an acceptable level. The outcome of the review will be reported with results in early March; we do not anticipate the group will wholly exit this operation but expect to see some rationalisation. The benefits of any actions are not expected to be realised until FY24, and in FY23 we may actually see some negative impact as the business is rationalised ahead of costs being removed. With this factor and ongoing inflationary pressures, the group is flagging that it does not expect to see much profit growth in FY23 vs FY22. We had only modest growth (£25.7m, EPS 53.4p) ahead of this update but we trim this slightly to £24.9m, EPS 51.7p. We still anticipate a bounce-back in FY24 (to £27.6m) as the OOH returns improve.
We are impressed with todays YE update, further reinforcing the resilience of the Vimto brand against a difficult consumer and cost backdrop. Revenue grew 14%, with International a key stand out and PBT in line with market expectations (+16% y/y). The OoH strategic review is near complete and will be unveiled at the March finals. We anticipate a robust plan to lift profitability from FY24. There is also good news around succession planning with a new Chair appointed. Outlook commentary for FY23 is measured but in line with our unchanged expectation of flat PBT, followed by meaningful growth in FY24 as cost inflation subsides and OoH benefits flow through. The shares on a 11x EV/EBITDA rating for a branded international soft drinks company with >£55m of net-cash (14% of market cap) are undervalued - Buy.
Nichols has delivered improved 1H profits, with PBT of £11.3m vs £8.9m in 1H21. EPS were 24.8p and the interim dividend 12.4p (+26.5%). The profit improvement was mostly driven by volume/revenue growth and, in particular, the recovery in the Out of Home channel (OOH). Revenues overall were ahead by 19.1% - with a 131.5% increase in OOH and a 5.1% increase in UK packaged drinks. For UK packaged, all of the revenue growth came from the higher prices implemented to recover inflation – volumes were flat in the period. International sales were 7.2% lower, but this mostly reflects a heavier phasing to 2H in the Middle East. As above, the group implemented price increases in the half in order to mitigate the impact from inflation. These, together with the move to a new contract manufacturer for squash, have helped protect the group’s margins. The margin decline reported at the gross level was a reflection of the change in revenue mix, with OOH a lower margin channel. The strategic review of the OOH business is continuing, with a focus on the cost to serve. With this detail, the group will likely rationalise the business (range and possibly customers) to remove complexity. It continues to see a future for this channel in the group. With the cost mitigation undertaken, the group has said it remains confident of meeting this year’s expectations (consensus PBT is £25.2m). However, it has also flagged that cost inflation is not abating as quickly as it might have hoped. Without the help of the co-man change next year, it might be harder to fully offset this in margins and, with this caution in mind, we trim our FY23E numbers by 6%, reducing PBT from £27.4m to £25.7m. EPS reduce from 56.5p to 53.4p.
Sales growth led by OOH Nichols announces strong revenue growth of 19.1% to £80.2m for 1H22, but this reflects growth only in its out of home channel (OOH +131%), and this benefits from comparison to last year’s period when restrictions were still in place in this sector. UK packaged volumes were flat (although this was against a market which was down) and International sales were also lower although this reflects the phasing of deliveries to 2H for the Middle East region. In market sales of cordials in this market were ahead. Margins retreat slightly Profits rebounded too with PBT of £11.3m (vs £8.9m last year) excluding exceptional items, a 26.7% increase. Sales are now back above pre COVID levels but, like many companies, profits are taking longer to recover (1H 2019 PBT £13.3m). Behind this profit improvement EBIT margins were down slightly on 1H21 (-50bps to 12.5%), reflecting the mix of business in the period (OOH is lower margin). The strategic review of the OOH business continues and the group hopes to report on this at the year end. Expectations unchanged for FY22. Management flags significant and accelerating inflation around ingredient and packaging costs, but confirms that as a result of its mitigating actions it remains in line with expectations this year. However, it does expect inflation to continue into FY23. Consensus PBT for FY22 is £25.2m. INV FY22E PBT £25.2m, EPS 54.9p. FY23E PBT £27.4m, EPS 56.5p.
Nichols has reported a good set of interims, successfully managing sector headwinds. This was led by further UK market share gains and significantly, OoH revenue back above pre-covid levels. Timing and shipment challenges hindered International progress but momentum exiting Q2 has been good. The OoH strategic review is progressing well. A keen focus on value over volume and mitigating actions means no change to current year expectations. However, prudence around industry challenges influence us to trim 8%/6% off our FY23/FY24 PBT numbers. The mid-long term thesis around UK market share gains, prospects of a value accretive OoH business post the strategic review and attractive international prospects remain firmly intact. The shares trade on a FY23 EV/EBITDA of 14x vs a 5 year average of 16.5x. We stay at Buy with a reduced 12m TP of 1540p (vs 1625p).
Today’s AGM signals a good start to FY22. Q1 trading in the UK has been strong, with Vimto value growth an excellent 10.8% whilst OoH continues to show good recovery momentum. International sales after a robust start, softened towards the end of the period. This chiefly reflects a very strong comp and temporary transport logistics disruption to canned drink supplies into Africa in March – now resolved. Overall, the top-line picture is solid. Inflation however remains a concern but to date it is being best managed. The other main news this morning is that long standing Chairman, John Nichols, is retiring. There is no change to full year PBT expectations and the shares on a FY22 EV/EBITDA of 14x vs the sector on 17x are attractively valued. We stay at Buy with a 1625p TP
Good full year results, as previously flagged, with PBT at the top-end of guidance and another year of strong execution. UK Packaged sales advanced by 8.5% and International growth was a stellar 21% - blended a strong 11% LFL. As flagged back in January, OoH goodwill has been impaired - the full £36.2m on the BS. Ultimately, post a strategic review we expect a leaner and fit-for-purpose OoH business to emerge. Investors should welcome no change to FY22 expectations and high single-digit PBT growth guidance for FY23, despite the inflationary headwind. This is in line with our unchanged forecasts. Overall, on a 3 year view we are attracted to: (i) the prospects of a positive strategic outcome for OoH; (ii) PBT CAGR of 10%; and (iii) the possibility of new CEO switching M&A focus from OoH to the core soft drinks area. Nichols remains a quality growth company and we reinforce our Buy and 1625p TP.
Nichols FY21 update confirmed it had traded in line with expectations and expects to deliver PBT in the £21-22m range. Our PBT forecast of £21.6m sits mid-range and we make no changes to this today. This compares to £11.6m in FY20 but £32.4m in FY19. FY21 revenues increased by 22% to £144m, with higher contributions from all three business units. Out of Home has started to rebuild following the removal of restrictions in 2H. International, after a very strong 1H, will be comfortably ahead (our forecast +24%) and Vimto, in UK Packaged, continues to show good momentum. The numbers above show the group has some way yet to go to recover its full profitability. In some regards this is due to the higher level of inflation it has been seeing in 2H21 and into 2022. It has pricing plans in place, so hopes to largely recover this inflation as the benefit of higher prices fully feed through. The rest of the shortfall is due to the reduced return from Out of Home. This business is still showing a marked shortfall in revenues still vs FY19 (although mainly in 1H21 with a much improved 2H run rate), but, with a high fixed cost base, returns are still impacted. This business is the subject of a review which is likely to result in a (non-cash) write-down in goodwill, but the group will also look to address how it can improve the returns from this route to market. Cash balances closed the year at just shy of £57m, a £9-10m increase on the PY. This gives the group plenty of scope for M&A, although we expect the previous focus for acquisitions will move away from Out of Home. For FY22, the group also confirms its expectations are unchanged. Our PBT forecast of £25.2m is in line with consensus. In FY23E, we expect the group to be moving back to the c.£30m profit figure it has achieved in the past.
Nichols has issued an in line FY21 Y/E update, highlighting another year of good growth in the core UK and International Packaged business. Management reiterate FY22 PBT guidance which is reassuring given the inflationary backdrop. The update also flags expectation of goodwill impairment for OoH at the March finals. Given Covid induced changes to the end markets this part of the business serves, the balance sheet adjustment is not a huge surprise to us. Ultimately, post a strategic review we expect a leaner and fit-for-purpose OoH business to emerge. We make no changes to our 3 year PBT forecasts. Fundamentally, Nichols is a winner with high brand equity, excellent cash generation credentials and a strong balance sheet which affords it M&A / returning cash to shareholders optionality. On a 12m view we expect Nichols to continue outperforming sector growth and investors to focus on its superior fundamentals. We rate the shares as a Buy with a 1625p TP.
After an encouraging Q3, Nichols is lifting its FY21 expectations. It reported 17% revenue growth for the 9 mths, an acceleration in Q3 vs 1H (+13.8% growth). The UK packaged performance remains robust, despite the return to more normal trading conditions, with Nielsen showing +4.5% growth in the Vimto brand value YTD. Nichols’ own performance typically outperforms this as Nielsen does not perfectly mirror the group’s distribution base. International remained strong (+36% growth 9 mths), with Africa performing well. This business is seasonal (depending on shipment schedules) so we do anticipate a quieter Q4. However, FY21E should still be ahead by over 20%. Out of Home continued to recover, although Q3 comps from last year also reflected the absence of restrictions. Q4 comparisons will be easier as restrictions were reintroduced later in 2020, impacting on the Christmas performance. Overall we increase our group revenue forecast by c.3% (£4m). This flows through to an increased PBT. Our FY21E PBT increases to £21.6m, 47.2p (from £18.9m, 41.2p EPS). As this is more timing led, we do not make as large an FY22E adjustment, lifting from £24.2m, 52.9p to £25.1m, EPS 54.7p. Although revenues in FY22E should top the pre COVID highs of 2019, we remain cautious on margins due to the process of recovering current cost inflation and also the ongoing investment in the Middle East (due to the sweetened beverage tax). This investment should continue to reduce and we expect margins to build further, to the high teens, in FY23E. We revisit TP. We continue to base the TP on FY22E (with a more modest profit uplift of 4%) but as multiples in the beverage sector have reduced, this more than offsets the upgrade, leaving our TP lower at 1310p (from 1424p). With the TP now offering upside to the share price, we move from Sell to Hold.
Positive trading update
Good sales recovery The Q3 trading update reports that trading has been ahead of expectations. Revenue has increased 17% in the 9 mths to end Sept, to £107m. UK progress in the Vimto brand was +4.5% (Nielsen data), international growth was 36% (H1 was +42% but this revenue is seasonal) and out of home is recovering with 29% growth in the 9 mths (H1+8.3%). Our current revenue forecast is £138.6m which would imply c£32m of sales in Q4, but the group has already delivered £40m in Q3. Q4 should benefit from some seasonal weighting in the UK, assuming no further COVID restrictions. PBT guidance lifted The company now expects Adj PBT for FY21 will be ahead of market expectations (assuming a reasonable Q4/Christmas) and in the range of £21-22m. We were forecasting £18.9m (41.2p). The new range suggests a 2H PBT of c£12.5m after a 1H PBT of £8.9m. Caution around FY22 margins However, this upgrade is being assisted by the timing of the COVID recovery and does not necessarily have a major impact on FY22 where we had assumed less COVID impact. Additionally, the group is again flagging margin headwinds from inflation in logistics, materials and labour, hence it leaves its FY22 expectations unchanged. We are forecasting £24.25m, EPS 52.9p. We will review our forecasts for FY21 in light of this new guidance, and also revisit TP / recommendation as market multiples have changed since we last published.
Nichols has enjoyed a stronger than anticipated Q3, prompting the management to issue a positive 9m trading update. This signals a full year outcome “ahead of current market expectations.” Good momentum has been seen across the UK and Internationally. Looking ahead to 2022 the challenge will be managing inflationary pressures but history shows Nichols has a good track record on this front. We upgrade our FY21 PBT by 17%. For FY22 we upgrade by 7% to bring us into line with consensus. With the core UK and International business strengthening through Covid and OoH recovering in line with its hospitality customers, Nichols is moving firmly back in the right direction. We would argue the rating should recover towards the 10 year average EV/EBITDA of 14.5x, implying a share price towards 1400p. Overall, pleasing news today from this high quality soft drinks company.
Nichols has had a strong H1 to deliver 14% revenue growth, led by the higher margin international business. It enters H2 with OoH now broadly in line and momentum rebuilding ahead of the busier summer trading months, UK packaged continuing to deliver pleasing growth, International on the front foot and news of a leading brand distribution win (SLUSH PUPPiE) in the frozen slush category. We keep our 3 year PBT estimates unchanged but see the company moving in the right direction to rebuild profitability back towards our pre-pandemic FY20 estimate. The share price has recovered towards March’20 levels, but on growing recovery conviction and attractive mid-term growth considerations we stay positive with a DCF based valuation of 1745p.
Nichols’ AGM statement indicates that overall revenue fell by 5.9% in Q1 2021 with declines in its Out of Home business more than offsetting the progress made by its UK Vimto brand and International business. The company has re-instated guidance with adj PBT expected to be in line with current mark
Nichols’ Q1 trading update brought no real surprises, with revenues down by 5.9%. However, it was encouraging to see a solid start to the year from the businesses outside of the “Out of Home” sector (OOH). Understandably, with hospitality venues in lockdown in Q1, this division was severely restricted, reporting a 91.9% revenue decline. Encouragingly, Nielsen data showed the Vimto brand up 4.6% in the UK, outperforming the soft drink market (quoted at +3.2%). This was against some tough comparatives – March last year saw panic buying in retail. The revenue growth was underpinned by discounters and multiples; cash & carry was down due to the hospitality hit/lockdown. International also reported a double digit revenue advance, with increases reported by all three regions – USA, Africa and Middle East. Middle East was helped by the phasing of deliveries ahead of Ramadan. There are fewer (social) restrictions in place this year than last through the Ramadan month, and sales into the trade looked encouraging. However, a better idea of the region’s performance will only come once we know the sell-through in the market. UK hospitality is starting to re-open (for indoor venues) only from mid-May, so 1H will still lose a large part of its OOH revenue, but this should start to recover through the summer, assuming no further lockdowns. On valuation, we feel the stock has run a little ahead of trading – as a popular IHT investment, this can occasionally be the case. We set our TP using the average NTM EV/EBITDA (pre-COVID) of 15.5x and apply this to FY22E EBITDA. This suggests 1350p, which is up on our previous level, but still below the current share price. Hence, we move to SELL, but note that this is on valuation grounds, rather than any implied criticism about the business/strategy.
Today’s Q1 update signals a positive start to the year, led by the International business whilst Vimto in the UK has continued to outperform. Post factoring in the OoH drag, revenue in the period was down only 5.9% - a highly creditable showing we feel. Looking forward, Nichols enters the busier trading months with good momentum and OoH should benefit from the unlocking of the hospitality sector. We use this note to reinstate our forecasts and have positioned these prudently until we get a better feel of the OoH trading/customer landscape in the next 6-12 months. Overall, the strength of Q1 trading in the core UK Packaged and International business reinforces Nichols quality credentials. We remain positive and continue to back management to capture mid-term growth opportunities.
AGM Nichols’ AGM statement today reports that total revenues in the 3-month period to end-March are down by 5.9%. This is compared to a period last year that would have been largely unaffected by COVID. This comprises a 91.9% decline in Out of Home as customer outlets have been mostly closed, versus a period when they were all open until the very end of March. Q1 is typically the quietest quarter in the year for Out of Home. However, offsetting this the group has seen continued momentum in the Vimto brand in retail (Nielsen figures show +4.9%) as well as growth in International. Comps will change from Q2 As we move through to Q2, the comparatives will start to look very different and sales in the current year will also start to change in mix. As lockdown eases properly in mid-May, we expect the Out of Home operations to start to recover and we anticipate growth over the reduced revenue delivered in FY20 (when revenues were c£119m vs £147m in 2019). However, we do not expect a fuller recovery in top line until FY22E. Broadly in line The Board remarks that it expects PBT to be broadly in line with market expectations assuming no further lockdowns so we make no changes to forecasts. We expect FY21E PBT of £18.6m, EPS of 40.6p. We will revisit our target price as, increasingly, the market is looking through COVID-impacted numbers to the “recovery” year when valuing companies.
Nichols' FY 2020 results reflect the impact of the pandemic on its Out of Home business, with adj EPS falling by 65% to 25.6p. Within these results there was an encouraging performance of its core Vimto brand, making good progress in the take home channels, consolidating its No.2 position in brande
Nichols’ FY20 results show the challenges faced by the business last year, although it remained profitable and importantly retained its cash strength. Revenues were down 19% in the year, but this was largely attributable to one business. The Out of Home (OOH) operations, which historically have accounted for 30% of the group, reported a 61% decline, with customers closed for several months and then reporting reduced footfall during the few months when they were open. Understandably, profits were hard hit in this division. International and UK Packaged revenues were both broadly resilient, although there was some margin erosion from channel mix changes in the UK and increased investment in the Middle East following the imposition of a sweetened beverage tax. Hence, FY20 PBT was down 65% on the prior year, with EPS down by a similar magnitude. Given its cash position at year-end (£47m), the group did however declare a dividend, with a final payment of 8.8p. FY21 starts with COVID restrictions still in place; OOH channels are only expected to re-open in mid-May – unfortunately for the leisure trade, after the normally busy Easter break. The company has issued no guidance for FY21 given the reduced visibility, but we have revisited our forecasts. With OOH revenues reduced vs our previous estimates, we also trim FY21E PBT from £20.6m to £18.6m. EPS is 40.6p (vs 45p) and the company has indicated that in future it will pay a 2x covered dividend, so we forecast a FY21E dividend of 20.0p. Some reinvestment in working capital is likely in FY21 as channels re-open but, with improved profits, we expect net cash to remain above £40m. It might be optimistic to expect the OOH channel to fully recover given the financial strain that the enforced closures will have caused, so we only project profits recovering to close to £30m in FY23E.
In line finals from Nichols this morning, highlighting a solid performance across the core UK/International business outside OoH (30% of sales). With a roadmap announced for the reopening of end markets, we expect trading to progressively improve from mid-April. Critically, this timing is important as Nichols moves towards the stronger Q2-Q4 quarters which last year suffered from various lockdown restrictions. Forecast guidance remains suspended but once uncertainty eases, we expect the new CEO to provide a review of OoH and future growth drivers. Fundamentally, we expect Nichols to continue growing UK market share/international sales and to utilise its strong balance-sheet to take advantage of any M&A opportunities. Overall, Nichols is a high quality business, with solid cashflow credentials and a management we back to capture mid-term growth opportunities.
Out of Home drags
Nichol’s YE update is in line with guidance given in November at the time of the 9-month update. This is reassuring and a positive outcome given tier restrictions created additional challenges during the critical month of December. Overall, sales are reported to be down 19.3% to £118.7m vs our £119.4m, with OoH the principal drag. This should not overshadow another excellent year for UK Vimto packaged and further international progress. Pleasingly the company generated £6.4m of cash in the period resulting in net-cash of £47.3m (119p per share). Going into 2021, we are encouraged by management being on the front-foot re NPD/marketing and Middle-East Ramadan orders being in line. And whilst lockdown 3.0 is clearly unhelpful, Q1 is traditionally the quietest quarter. Overall, notwithstanding near-term CV19 uncertainty we expect the core Vimto business to further outperform and international sales to move ahead. For OoH the year is one of transition as management look to reset future direction given the mid-long term implications on end markets from CV19. Fundamentally, Nichols is a winner with significant growth runway, excellent cash generation credentials and a strong balance sheet which affords it optionality.
Nichols has issued a 9m trading update to the end of Sept and a full year outlook. Following on from H1, it is pleasing to see further positive momentum across the dominant activities of UK Vimto Packaged and International (c70% FY19 sales), whilst the cash position remains very healthy. Unsurprisingly OoH has remained significantly challenged (Q3 sales -45%), but we welcome the positive actions signalled this morning to align costs to a period of softer revenue whilst its main end market of hospitality navigates a pre/post Covid-19 landscape. Full year PBT guidance is for £11-13m - down c60% y/y, reflecting high operational gearing at OoH from a >£25m loss of sales. With FY21 a year of partial profit recovery, FY22 is of greater relevance from a valuation perspective and whilst guidance remains suspended, we see a pathway to get to 80-85% of our previous FY20 PBT of £29m. This would imply EPS of c53p, set against a 10 year P/E average of 20.4x. Overall, we feel OoH uncertainty is priced in and should not overshadow the ongoing resilience of core activities, as well as the fundamentals around longevity/growth prospects of the Vimto brand, geographical diversity and a strong c£44m of net-cash to capitalise on future opportunities.
Retail & International progress Nichols has issued a Q3 update highlighting the ongoing impact of COVID on the business. The core soft drink brand Vimto has continued to outperform the wider market, reporting YTD sales up by 5.8% v 1.9% for the market. International has shown continued momentum with good growth in Africa (10.5% YTD). Out of Home still affected However, the virus is still impacting Out of Home (typically 30% of group sales). The group has a slightly different customer mix versus those hospitality operators serving the on-trade, with more exposure to leisure outlets such as cinemas, bowling alleys, leisure centres etc and many of these outlets have remained closed even after lockdown #1 ended. Hence, Q3 revenues were still down 45%. Q4, with a second lockdown, will continue to be affected too. A cost cutting exercise is underway still – looking at discretionary spend, moving some marketing to FY21, but also a review of the operational structure which is likely to result in the permanent reduction in headcount by Q1 next year. PBT estimates guided down Reflecting the continued uncertainty for Q4, the group guides to a PBT of £11-13m this year. This compares to our PBT forecast of £16.7m (EPS of 36.5p) and last year’s PBT of £32.4m. Cash performance is strong with £45m on B/S at end Q3. No guidance issued for FY21 - our forecast is currently £25.6m, EPS 55.9p.
Interims highlight a resilient top-line performance and further good news on Vimto market outperformance. Investors should also welcome the reinstating of the dividend and a pleasing Middle East update. The other main news is the planned departure of CEO, Marnie Millard, with Andrew Milne the COO stepping up to fill the role. Marnie leaves Nichols in a strong shape and a smooth handover is anticipated. Ongoing OoH, consumer and Africa CV19 uncertainties mean forecast guidance remains withdrawn and thus we are not reintroducing forecasts at this stage. Overall, a positive set of interims today, reinforcing Nichols attractions of brand strength/robust balance-sheet/geographic diversity. The shares trade on an undemanding historical P/E of 16x, EV/EBITDA 11x and 6% FCF yield vs a LR P/E and EV/EBITDA of 20x/14x.
Nichols 1H’20 results were understandably soft with sales declining 17.3% and adjusted EPS declining 49.6%. Cash flow from operations was quite strong, growing 12% YoY. While uncertainly lingers, leading to withdrawn guidance, there are signs of confidence such as paying an interim dividend of 28p, effectively making up for the missed final year payment from 2019. There are senior manager and Board level changes: Andrew Milne will succeed Marnie Millard as CEO from 1 January 2021. James Nichols has now joined the Board. We reduce our EPS estimates implying a 21% decline YoY for FY 2020E. While the performance was challenged, the valuation is also more attractive today on 2Y Fwd P/E of 17.3x vs our September 2019 initiation when it was on 22.7x. The stock is also at a multi-year low in terms of relative valuation vs the FTSE All Share. We hope to revisit our target price, now U/R, after the conference call when we should have more clarity.
Nichols has issued a Covid-19 update this morning, signalling the need to protect the balance sheet during the current uncertainty to help ensure it emerges in a strong position to deliver mid-term growth objectives. Briefly, whilst trading in the first two months of FY20 was in line with management’s expectations, Covid-19 is expected to have an adverse impact in the months ahead. This reflects both the OOH division being directly exposed to the UK lockdown of pubs/restaurants/cinemas but also recognising the potential risk to retail sales from any protracted restriction of movement of people worldwide. Given this backdrop, management now expect a significant financial impact in FY20. In line with some of its peers, the company is temporarily removing financial guidance and we withdraw our forecasts. Given the uncertain outlook, the Board has taken the prudent decision to cancel the final dividend announced in the Feb finals of 28p per share, conserving a significant £10.4m of cash. Notably, the update signals that the Board will consider reinstating the dividend payment once there is a better handle on the cash position post the critical spring/summer period. In addition to this there are various other cost action plans to protect the P&L and cashflow. Whilst today’s update is not a huge surprise given the Covid-19 backdrop, it does not fundamentally change the positive investment thesis - as evidenced by 10% PBT CAGR in the last decade (virtually all organic). Nichols has an asset light business model, an excellent and proven management team and a robust balance sheet (£41m netcash at Dec’19) to ensure it effectively manages near term pressures and prospers over the medium term.
Out of home exposure Nichols reports that trading in its first two months was in-line but, in light of restrictions on movement due to COVID-19, it expects there to be a significant impact on FY20 numbers. It withdraws guidance. The group's out of home business is 30% of revenues and this will be impacted by the current shutdown of outlets, with some possible offset through retail. However, it is yet unclear how the international operations (Middle East and Africa largely) could be affected. Asset-light model It has an asset-light model (outsourcing the Vimto main production), but will still look to reduce costs including marketing spend and postponing non-essential recruitment, capex etc. Net cash It had £40m of cash at the year-end, but will look to conserve this over the important spring/summer months and is cancelling its announced final dividend (of 28p), which will save c£10m. The chairman stated that the board is confident the group can managed the near-term pressures and emerge well-placed to deliver on its long-term growth plans.
Nichols full year results show another year of good top-line execution and PBT delivery in line with market expectations. We make no meaningful forecast changes. The company enters 2020 with good self-help momentum and various NPD initiatives. There is no new news around the Middle East excise duty headwind. More clarity will emerge by the July interims. The recent FY20 profit reset should be seen in the context of an otherwise exemplary record on execution and delivery. A combination of high brand equity, significant top-line potential, geographical diversification, track record of innovation and a cash generative profile with balance sheet optionality warrants a premium rating.
Nichols has confirmed a solid operational performance for FY19 in its full-year trading update. Group revenues are expected to be ahead of the prior year by 3.6%, with progress recorded in both the UK (with some help from acquisitions in Out of Home) and International markets. It expects to deliver FY19 profit before tax in line with market expectations. We make no changes to our FY19E PBT forecast of £32.8m. In the UK, this is a solid result in light of the tough comparatives from FY18 (especially in 2H) following the exceptional summer weather. Internationally, revenue has benefited from a very strong Ramadan campaign across the Middle East, with sales in this region up over 20%. However, in a pre-Christmas statement the group highlighted the recent implementation in Saudi Arabia/the UAE of an excise tax of 50% to be levied on soft drinks which have added sugar or sweeteners. Given the breadth of the tax, there is no option to avoid this through reformulation. It is difficult to estimate the volume impact this tax might have but, given the 50% price increase, the group has remarked that it could be material. As sales are largely focused around Ramadan (23rd April - 23rd May 2020), we should have visibility around the half year. Sales in these regions are c.£7m but, as they comprise concentrate sales, the profit margin will be high. It will look to collaborate with its in-market partner in this region (Aujan Coca Cola) to support the Vimto brand with increased investment. In advance of any firm view on the possible impact, we prudently trim FY20E PBT from £34.3m to £29.5m (-14%). EPS reduces from 74.8p to 64.3p. We also reduce FY21E forecasts (see table overleaf) and trim our TP accordingly. This falls from 1700p to 1430p, although we maintain our Hold.
Nichols has issued a scheduled year-end trading update. In a tough soft drinks market it has once again delivered against market expectations, highlighting the strength of the diversified model. Briefly, growth was in evidence across all three division, with the core Vimto brand holding market share despite a very strong UK comp and International having a good year. This translated into c4% sales growth and 3% at the PBT level. So another year of solid delivery, further reinforcing management’s excellent track record. The outlook for 2020 remains unchanged from the reduced guidance given last month owing to the Middle East excise duty related headwind. We are prudent with our numbers and following the 2020 reset, the company is expected to return to growth in 2021. Overall, we remain positive, attracted by the cash generative nature of Nichols’s asset light business model and significant UK and International growth potential from market share gains. On a 12m view we expect the company to continue outperforming operationally and investors to focus on its superior fundamentals.
Nichols offered a bit more granularity this morning on the drivers of its top-line growth. The top-line growth came out to 3.6%, which is arguably at the low end of the c.4% guidance from 23 December 2019.
Nichols’s trading update signals an in-line FY19 outcome driven by UK market share gains and good international progress. The main news today is the recent 50% excise tax on non-carbonated drinks in Saudi Arabia/UAE. This is a headwind going into FY20 which at this juncture is extremely difficult to quantify given c.80% of in-country sales of Vimto in the Middle East are made during the one month of Ramadan. Our analysis shows a potential c.£2.5-£4m PBT hit. Given the uncertainty we prudently factor in £4m and some UK caution, resulting in a 15% FY20 PBT downgrade (the range is 10- 15% given the unknown impact of the levy). The shares trade on a FY20 P/E of 26x and 17x EV/EBITDA vs a peer group average of 23x/17x. Whilst the short-term Middle East uncertainty is unhelpful, on a 12m view we expect the company to continue outperforming operationally and investors to focus on its superior fundamentals.
Nichols has this morning confirmed the appointment of a replacement FD - David Rattigan, currently interim CFO of McBride, following 5 years as Group Financial controller. We feel this is a good solid appointment as David brings relevant FMCG and restructuring experience from both a branded and private label perspective, having also held senior management roles at United Biscuits and Sodexo. He will officially start on the 24th February 2020 with a smooth handover period over the following months given the current CFO, Tim Croston, is scheduled to step down from the Board by 30 June 2020. Overall, we view today’s CFO news as positive on various fronts and helps remove an area of uncertainty.
Nichols is a high-quality business with a high rating. Vimto is a ‘must stock’ brand in the North West of England and in the Middle East for Ramadan.
Top line momentum at Nichols appears robust, albeit with investment (for now at least) curtailing bottom line upgrades. We continue to view Nichols as a high-quality business, well positioned to take market share in the UK, with the addition of a long term emerging market structural growth stream. We also note the group’s balance sheet flexibility and an acquisition track record building in Out Of Home (OOH). However, with the stock revisiting valuation multiple highs and some uncertainties surrounding the Middle East (possible Saudi levy on drinks with added sugar/ Yemen conflict), we remain at HOLD. We continue to have a preference for Fevertree and C&C amongst our Beverages coverage
Nichols has navigated a tricky H1 to report a pleasing set of interims with a strong 8.1% LFL showing and good international progress being the stand out features. Looking forward, whilst the UK market is expected to remain challenging, Nichols is geographically well diversified (>45% EBIT) and has good momentum in its Out of Home business to support future growth. We make no changes to current year forecasts and tweak outer year PBT by a modest -2% to primarily reflect a higher depreciation charge. We remain positive on growth, international diversification, M&A optionality and progressive DPS considerations and see fair value towards 1785p.
Nichols has issued a reassuring AGM trading update covering Q1-19. The UK has sustained the positive momentum of recent years and International has got off to a strong start, albeit vs soft comps. Whilst the UK consumer / grocery sector backdrop remains uncertain, we feel Nichols is well placed to build on the good start to the year as it enters the busier trading periods. We make no forecast changes at this juncture. Nichols is one of our key N+1S 2019 stock picks and to date the recommendation has served us well with the share price up 29% YTD. The stock trades on a FY19 P/E of 24.6x and 17.4x EV/EBITDA. Whilst in the near-term the valuation looks fair, we remain positive on a 2-3 year view on quality growth, DPS and balance sheet considerations. For reference our DCF valuation is c.2000p
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Nichols’s FY18 finals demonstrate another excellent period of sales growth and the virtues of being geographically diversified. The UK had a stellar year while International matched lower guidance. Profitability came in line with expectations and there is good news on the dividend front, a bolt-on deal and contract win. We make no change to our FY19 PBT but upgrade FY20 by 3%. We view Nichols as a core holding and see fair value at c1700p.
Nichols’s YE trading update signals a beat against market expectations, market share gains and the virtues of geographical diversification. It has enjoyed a strong H2, led by the UK, resulting in overall sales growth of 7% vs our 5%. UK had an excellent year, significantly outperforming market growth and reflecting another period of successful strategic execution. International progress as expected was mixed with Yemen and Saudi shipment timing issues a drag. This was well flagged at the interims and thus not a surprise. What is reassuring is evidence of Africa returning to strong growth in H2. Overall, top-line strength influences us to upgrade our FY18 PBT by 2% but prudence dictates no change to outer year numbers at this stage. The shares trade on a FY19 P/E of 19.8x and 13.9x EV/EBITDA – a 6%/12% discount to close peers. We see fair value towards 1580p and see today’s positive update as supportive of our bull stance. Fundamentally, Nichols offers a combination of defensive UK growth, international diversification, M&A optionality and a progressive DPS. We expect the shares to re-rate in 2019 as the virtues of geographical diversification and good top-line momentum are better discounted.
Nichols interims have come in ahead of expectations and, as a sign of ongoing confidence, the DPS has been lifted by 11.9%. We are impressed by double digit UK sales growth, with an excellent 9% LFL from the core Vimto brand. International sales were broadly in line with guidance. Whilst we make no forecast changes, the risk remains on the upside. We see intrinsic value towards 1950p on DCF criteria and stay positive on BS strength/optionality, a progressive DPS and growth prospects.
Nichols FY17 results highlight another year of excellent top-line progress, with doubledigit growth in the UK and International. This is impressive given various challenges in the year. Profitability is in line with expectations but there is a better than anticipated uplift in the DPS – a good signal. Whilst there is no change to the Yemen situation, outlook commentary around the UK and Africa is positive. We keep our forecasts largely unchanged and see intrinsic value towards 1950p on DCF criteria. We remain positive on BS, a progressive DPS and ongoing growth prospects.
Nichols’s 2017 trading update highlights a year of strong revenue growth in the UK and Africa. The resulting market share gains reflect positively on the management. Recent political developments in Yemen, which are totally outside of management’s control, however, have had an adverse affect on Middle East sales. Consequently the company is guiding to a flat 2017 PBT outcome and given regional uncertainty going into next year, modest profit growth in 2018. As a result we lower our 3 year PBT forecasts by 6%-12%. Whilst it is disappointing to be downgrading, we strongly feel this should not overshadow Nichols’s fundamental attractions around geographical diversity, a progressive DPS policy and a strong balance sheet.
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Nichols continues to justify its premium rating, posting a strong set of interims with LFL sales growth of 12% and EPS of 7%. The core Vimto brand has continued to comfortably outperform the UK soft drinks market and International momentum remains impressive. Today’s interims are also accompanied by a small bolt-on deal of a distributor which triggers FY18 and FY19 EPS upgrades of 3%/4% respectively. The shares trade on a premium FY18 P/E of 25x which we feel is deserved given the internationally diversified nature of income and excellent track record of positive forecast momentum. Given favourable ongoing growth prospects and optionality afforded by a growing net-cash position, we feel Nichols should be a core mid-cap holding. We stay positive and argue for ST fair value towards 2100p – 27.5x FY18 EPS.
Nichols (NICL LN, BUY, T/P 2300p) released interim 2017 results broadly in line with both our own and market expectations as group revenue and EPS advanced by 12.4% and 7.4% respectively. Interim dividend is due to increase by 12.2%. Whilst market conditions are envisaged to “remain challenging” the company expects its full year earnings to be in line with expectations.
Nichols (NICL LN, BUY, T/P 2300p) is due to release interim 2017 results on 20th July. Yet while too early to benefit from any unusually dry summer weather, which may be in prospect, the results will include the impact of the company’s Middle East performance during Ramadan, which this year ran from 26th May to 24th June. We estimate that around one third of the company’s profits are generated in the Middle East.
A very pleasing AGM update from Nichols this morning. By all accounts it’s had a strong start to FY17, with UK metrics in Q1 illustrating further outperformance vs the soft-drinks sector and international showing strong trading momentum. Admittedly, Q1 is the quietest quarter but it’s reassuring to see the company get off to a good start. The update flags various headwinds in 2017, but these have been well trailed and if anything recent sterling strength is a positive from an input cost perspective. Given reference to trading being in line with management expectations and the fact that the all important summer and Q4 trading season is still ahead, we make no forecast changes at this juncture. The share price has rallied 12% since the 2nd March finals and is up 14% YTD. This leaves the stock trading on a FY17/FY18 P/E of 27x/25x and 19x/18x EV/EBITDA respectively. The tenor of toady’s AGM reinforces the attractions of the stock and whilst the rating looks full in the short-term, we see scope for further share price upside on a 12m view.
Nichols (NICL LN, BUY, T/P 2300p) this morning released a trading update before their AGM at 11am this morning. Nichol’s trading performance for the first quarter is in line with full year management expectations.
In our view Nichols (NICL LN, BUY, T/P 2300p) remains well positioned to grow. Its core Vimto business’s strong performances in both the UK and Middle East enjoy significant intra-regional geographic growth opportunities as well as generating enough free cash flow to fund NPD and selective M&A. Moreover, we argue that the company’s very virtuous outsourcing business model merits a premium valuation. We raise our price target from 1760p to 2300p. BUY.
FY16 results make positive reading reflecting the strength of a diversified model. Management has once again successfully executed strategic and growth initiatives to deliver strong sales and double-digit EPS growth. The 14.5% DPS uplift is a positive signal about prospects. In FY17 NICL will face higher cost pressures but has mitigating levers and good trading momentum to create further value. We keep our FY17/18 PBT forecasts unchanged but lift EPS by 1.4%/2.5% and see fair value at 1800p.
Nichols’ (NICL LN, BUY, T/P1760p) preliminary 2017 results included beats at both pre-tax and EPS level. The company reported £30.4m of pre-tax profits – similar both to our own £29.8m estimate and consensus. But adjusted diluted EPS at 66.1p (+9.7%) was comfortably ahead of the 63.8p that we envisaged as well as being above the 65.5p consensus (source: Bloomberg). The company’s tax rate dropped from 20.7% to 19.8%.
PepsiCo’s (PEP US, N/R) full year figures reconfirmed growth expectations for the US FMCG giant in 2017. PepsiCo – which generates one third of its revenue from North American beverages – looks for 3% organic sales growth in 2017. Our own view about UK soft drinks remains positive. Flexibility around sugar, ongoing innovation, potential price support from a sugar tax and further M&A are all consistent with the industry maintaining sales growth and delivering positive share price performances.
Nichols (NICL LN, BUY, T/P 1760p) released a trading update today in advance of full year results due on 2 nd March 2017. The company announced that revenue increased by 7.3% to £117.3m, which compared with £118m Bloomberg consensus. Full year profit and earnings are expected to be both ahead of the prior year and in line with expectations
Nichols’ (NICL LN, BUY, T/P 1760p) 2017 trading statement should reflect a relatively flat UK soft drinks market while international continues to grow. UK market data suggest negative carbonates volumes with positive, albeit small, pricing. Stills continue to outperform carbonates in terms of overall revenue.
Nichols plc Carr's Group PLC
Nichols benefits from a strong core brand in Vimto, which is capable of both domestic and international growth. This core should be supplemented by Vimto Out of Home as well as further M&A. We initiate coverage of Nichols - one of the four major UK listed soft drinks manufacturers - with a BUY recommendation and a 1760p price target.
An in line AGM trading update from Nichols this morning which is good news. We should, however, stress that this covers the quietest quarter of the year with all the anticipated growth for FY16 dependent on good momentum coming from last years bolt-on deals, a reasonable summer and further international progress. Owing to the diversified nature of the portfolio and a significant international business, the risk around the proposed UK sugar levy is expected to be minimal we feel. To this end, we note the shares have re-rated by 1 P/E point to 20x FY16 since the March finals. We make no forecast changes at this early stage of the year and see ST fair value at 1430p.
Nichols has navigated a challenging FY15 to deliver double-digit EPS growth, strong margin progress and a 14% DPS uplift. We expect its diversified model, ongoing NPD and focus on value over volume to help support solid growth in FY16. Acquiring the remaining 51% of Noisy results in 1-2% EPS upgrades. We see ST fair value at 1400p.
Nichols has made good progress in diversifying UK sales so as to become less reliant on the UK grocery sector. At the same time the focus on value over volume and seeking to augment market share in the Midlands has strengthened the investment case. We estimate sugar tax risk to EPS a modest 3%. These features coupled with an attractive international growth angle should continue to support solid growth going forward and underpin the premium rating. A burgeoning net-cash pile offers additional growth optionality. We stay positive.
Nichols’s FY15 trading update builds further confidence that international diversification and a focus on value over volume can continue to deliver good sustainable earnings growth. The International segment made further y-o-y progress, especially over H2. The UK outperformed in a challenging market environment as well as driving solid growth in the higher value product categories. Net, better sales mix drives useful c.1% EPS upgrades over our 3 year forecast period, implying that our FY15 EPS is now 6% higher than 12m ago. Looking forward into FY16, we now estimate a solid 8.5% EPS growth, driven by the recent bolt-on acquisitions, NPD initiatives earmarked for Vimto and ongoing international progress. In a stagnant soft-drinks market this growth is highly commendable. The shares on a premium FY16 P/E of 22x adequately reflect the groups ongoing attractions.
Nichols has navigated a tricky first half to once again deliver double-digit EPS and DPS growth. There is also further positive corporate news with an earnings and strategically accretive acquisition of the Feel Good brand (premium adult drinks). We push through 3 year EPS upgrades of 2.5%-5.5% and advocate fair value at 1420p.
