Sunday, 24 March 2013

Weighing Up Nichols (Vimto)


Nichols - makers of soft drink Vimto - have been on my watch list for quite a while. I think it may be time to take the plunge with my customary 'half' now and 'half' at some future point.

The company started off in Manchester in 1908. They first listed on the Manchester stock exchange in 1961 and transferred to the AIM market in 2004. They have expanded quite rapidly over recent years - in addition to Vimto, now selling in 65 countries, their brands include Panda, Sunkist, Levi Roots and most recently, a Weight Watchers range of soft drinks.

Earlier in March, the company issued its results for 2012. Sales increased 9%, profits were up 13% and once again they were able to increase the dividend 13% to 17.3p ( one of the reasons for buying now would be to qualify for the final dividend of 11.7p). The recent surge in the share price has increased its market cap. to over £300m. If it were listed on the main market, it would be just about eligible for the FTSE 250.

Around 80% of sales are generated in the UK and the remaining 20% from abroad, mainly Africa where sales increased 22% (and 28% in 2011), Middle East and mainland Europe. They have recently started a sales channel in China which could obviously be a huge market. Last year they were awarded the prestigious Queens Award for International Business. For the second year running they were nominated for AIM company of the year.

The share price has had a very good run in recent months - up from around 700p last June to currently 876p (25%) - so I would not be surprised to see some consolidation in the short term. However the management seem confident they can continue progress with new products in the pipeline and continued investment in strong brands combined with expanding the business overseas.

The balance sheet appears strong and the company has a net cash position of £24.7m - up from £20m in 2011.


As this is an AIM listed share, I will need to hold it outside of my ISA - however, I am hoping from next April the Chancellor will permit AIM shares to be included - as well as the abolition of stamp duty on their purchase!

One other point of note - many AIM listed shares can be used as a means to avoid or reduce Inheritance Tax (IHT) provided they are held for 2 years. The IHT limit has been frozen at £325,000 for the next five years which means many more people will come within this limit, particularly if property prices start to take off. Savvy investors (and their advisers) may increasingly look at AIM listed shares and their prospective saving of 40% tax as part of their future plans.

As ever please DYOR.

3 comments:

  1. John,

    Thanks for bringing that one to my attention - not one I've looked at before. The fundamentals look very strong, although on a PE of 21 and yield of 2% I'd want to see a significant pull back in price before it tempted me. Deserves a premium rating though for its "quality".

    (P.S. I'm jealous that I don't get as much time as you for writing at the moment!)

    Best,
    MI

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  2. Hello MI,

    Good to hear from you. Its one I looked at closely last year on a yield of around 3% (from memory) but I got distracted with the pension drawdown. Obviously it would be a better proposition at a lower share price but no guarantees this will happen anytime soon - which is why I like the half now and half later strategy in a rising market. I think, over time, buying quality will bring rewards even when purchased at a premium.

    Looking forward as ever to your next offering...its been a while!

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  3. I have held this since January 2013 and my impression is that, for those wanting protection from inheritance tax, it is one of the safest AIM shares. Fizzy drinks can be remarkably good businesses as Coca Cola has shown. Nichols has done brilliantly to grow the business internationally without too much risk. The obvious comparator companies in the UK are A G Barr and Britvic, which are of course in merger negotiations. I reckon Nichols is preferable to Barr because its international sales expansion has been so much more successful and I find the £500M debt at Britvic rather offputting. The rational merger is actually between A G Barr and Nichols and I wonder if the Nichols share price is reflecting this now that the A G Barr and Britvic merger shows signs of floundering.

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