Sector analyst Wayne Brown has said the move by AG Barr to split its shares into three divisions is “marginally positive” as it will increase liquidity in the soft drinks company. Last week AG Barr announced that it has received approval for the share split from HM Revenue & Customs. The move, which is expected to take effect at its AGM on 21 May, will see each of its ordinary shares of 12.5p each be subdivided into three ordinary shares of four and one sixth pence each. Brown, of Canaccord Genuity, said: “This is the second share split proposed by AG Barr with a 2-for-1 conducted in September 2009. The Board believes that the share subdivision may enable the company to attract more private investors and broaden its shareholder base. Illiquidity has always been a negative when it comes to the investment case and we see this move as a marginal positive to help rectify that situation.” Brown issued a Buy recommendation for AG Barr. “Our view of AG Barr’s investment case is positive and we feel the recent share underperformance offers a buying opportunity,” he said. “The shares have under performed the wider beverage sector by 37.5% over 12 months, 21.9% over six months and 12.9% the past three months. The UK soft drinks market has been resilient since the start of the downturn and should continue to grow in CY2012, although at a modest c1%. AG Barr should outperform this by 3-4 ppts. “With relatively strong pricing power, supported by a dynamic sponsorship and marketing programme, our sales growth forecast of 4.6% looks light. AG Barr has a strong track record of out-performance as it utilises its value focussed brands in resilient channels to grow sustainable share, underpinned by a strategy based on brand building. With investment behind a new facility to accelerate market share growth in England and Wales, we feel the long term opportunity for growth underpins our positive stance.” He added: “AG Barr generates superior returns with 2012 CFROA of 20.8% compared to its 5-year average of 18.6%. The shares are trading on 10.0x EV/EBITDA compared to a sector average of 11.1x. Our target places AG Barr at a modest premium to the sector which is fully justified by its strong track record and management team.”

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