All of the numbers below, are calculated using a 164m market cap and a share price of 450p
The story doesn’t just lie with Vimto internationally. In the
, Nichols have expanded their product range to things like Cherry Vimto and the Diet range. UK
I’ll run some numbers
So what we see here is an impressive growth strategy, particularly over the last year. Margins were trimmed slightly in 2009 but this was mainly due to promotional activity to add scale. Their trading history hasn't always been so rosy. In 2005 they bough the Panda and Sunkist brands, only to have a 5.7m goodwill impairment charge on Panda in 2008. Similarly, they have spent time refocusing soft drinks towards stills and sugar free options, as carbonated fizzy drinks are hardly the beverage de jour.
Looking at the divisional break up of sales
% of Soft Drinks
You can see that international sales are rising as a share of total soft drink sales. There were some manufacturing difficulties in Yemen which held back the 2008 numbers.Growth has been good and they are turning around the beverage systems division having changed strategy. They are now number three in beverage dispense in the UK. However, what is happening with the balance sheet?
2005 2006 2007 2008 2009
Everything looks fine here. Debtor days are reducing and creditor days are not reducing. Their cash generative nature is demonstrated when you look at cash flow
2005 2006 2007 2008 2009
|Op Cash Flow||9704||5841||7178||9414||14102|
This analysis is based on a share price of 450p and a market cap of 164m. So, it looks like they are incrementally adding free cash flow margin as turnover and profitability goes up. I'm very impressed with the trend in cash flow conversion. This suggests that as long as they can continue to grow revenues, they can increase free cash flow.
Consensus forecasts are for revenues of 80.4 and 83.75m revenues for 2010 and 2011 respectively.
The main downside risks are that they fail to continue to execute in the UK, bad weather (which affected 07 and 08) and a change of consumer tastes in the UK. There is also the general macro economic risk of falling UK carbonate and still sales.
The upside risk comes from continued strong growth in the Middle East and Africa. Furthermore, a potential purchaser spotting their positioning in the middle east and buying them out. Indeed, they were approached a couple of years ago. This was possibly AG Barr (Irn Bru etc) before they bought out Rubicon.
I think you could easily see them generating 9.6m in free cash flow in 2011 so a share price of 480p (a 5.5% FCFYield) is not unreasonable. However, at the current price I would probably want a dip first.
Disclaimer: I have no position. All figures are estimates, of which I take no responsibility for and, this doesn't constitute investment advice.