"The Middle East connection is topical but I'm not sure it's a pulling factor for me, and Africa is the heart of darkness m8 -- I've read Huxley!"
Shurely, Conrad, Games?? Mid-East and Africa has been a great "second act" for them - but like all Emerging Market angles, 'twill never be without risk... the Yemeni situation being a classic case in point. I don't doubt there could be a lot more to go for with this particular story, medium term, but it is unlikely to be plain sailing...
"70+% of the business is Vimto and at the mo it doesn't appear to be growing... the Vimto dependency will probably keep me away... I don't know anyone who buys it now... unsure if the price of the stock (not cheap) reflects this dependency."
There you go... I admit I only buy it occasionally, but Pie-Eater does! And many more like him, evidently... Vimto is still growing market share - in a tough, competitive sector - and then there is the International angle. But yes, it is now in a much more "mature" position, and progress from here can only really be incremental at best.
And no, it's not cheap (still)... but in recent times I have taken to comparing it to the likes of ULVR, DGE, RB (different animals, sure, but much closer in investment profile), and having traded at a big premium to these for a while, it is now more in line with them, on most key metrics. A much fairer reflection - no more, but no less - of some clearly attractive investment attributes?
There are no 'gimmes' in this market - you pay a full price (if not more) for 'quality', and while there are plenty of 'cheap' stocks, these all have their challenges and uncertainties - as we are currently seeing day in, day out, "stock-specific risk" abounds. I wouldn't be Buying NICL here either, Games - but I have the (lucky, probably) advantage of having bought in at what is almost an embarrassing price some 15 years ago. And I wouldn't be buying DGE, ULVR or even RB (albeit less so) here... but I can see why some would, and the same is probably true of NICL.
Bill - it's becoming topical isn't it?
70+% of the business is Vimto and at the mo it doesn't appear to be growing.
Nichols is buying businesses and is cash rich -- all +ve, but the Vimto dependency will probably keep me away.
I drank it when I was a kid, but I don't know anyone who buys it now.
Obviously they do but I'm unsure if the price of the stock (not cheap) reflects this dependency.
The Middle East connection is topical but I'm not sure it's a pulling factor for me, and Africa is the heart of darkness m8 -- I've read Huxley!
Shares magazine says "Stick with Vimto maker for its brands, balance sheet and geographical diversity" - full text from today's edition below.
It's in their "Great Ideas" category... a case of "great minds", Games?!
"A souring of sentiment towards soft drinks star turn Nichols (NICL:AIM) presents an opportunity to buy into one of the AIM markets most dependable consumerfacing companies. Earnings estimates have come down following a December profit warning and investors are worried that delivery issues in the Middle East could continue.
In our view the sell-off is overdone given Nichols strong brand portfolio, rock-solid balance sheet and long-term overseas growth potential. Newton-le-willows headquartered Nichols is the company behind the iconic Vimto brand, popular in the UK and around the world.
The product enjoys strong demand during the Ramadan religious festival. Nichols also owns Feel Good, a range of natural soft drinks with zero added sugar, Levi Roots, Sunkist and Starslush. Boasting brand strength, pricing power and an assetlight outsourced global production model, Nichols is highly profitable and strongly cash generative, which supports ongoing investment in organic growth initiatives and acquisitions, as well as a progressive dividend.
Late last year (19 Dec), Nichols warned the worsening of strife in Yemen had resulted in the supply route to its Yemeni customer being blockaded, preventing it from sending any further Vimto concentrate shipments planned for December 2017. Consequently, Nichols management guided towards a flat adjusted pre-tax profit haul for 2017.
Disappointingly, Nichols also warned 2018s percentage profit growth is likely to be constrained to the low single digits, since the Yemen conflict coupled with some reported slowing in the Saudi economy indicates that sales to the Middle East region in the year ahead are likely to be less than previously anticipated.
STILL FULL OF VIM
Shares believes the Yemen issue shouldnt overshadow Nichols strong growth in Africa and Vimtos ongoing outperformance of the wider UK soft drinks market, which is helping Nichols to mitigate input cost inflation. Nichols diversified product portfolio means it should be able to comply with and mitigate the effect of the governments soft drinks levy, effective from April 2018. As Nichols assures: We are well prepared for the introduction of the Sugar Levy with 100% of the Vimto and Feel Good brands portfolio already below the levy threshold.
For the year to December 2017, N+1 Singer forecasts flat adjusted pre-tax profit of £30.5m ahead of £31.1m in 2018 for earnings of 69.1p and a 35.5p dividend. For calendar 2019, the broker looks for pre-tax profit of £32.2m, earnings of 72.1p and further dividend growth to 39p. Significantly, Nichols net cash is forecast to build from £36.1m to £47.6m, acquisitions notwithstanding, in 2018, ahead of £60.1m in 2019."
"... summary points I took straight from the article ... useful to see it up against it's 3 peers ... I'm interested (loosely at the moment) in this, as I offloaded a chunk of Britvic at a 50% gain + divis - and partly due to the debt load being rather hefty at Britvic."
Yes, merely a good excuse for me to reprise my usual ROCE rant... Oakley being one of many who are rather too easily impressed by high headline "reported" ROCE. As I always say, there's a long list indeed of stocks coming to significant grief even when showing superficially-impressive ROCE.
Wouldn't be surprised if Carillion looked fine on ROCE, right to the end! Or maybe not... I haven't checked...
"... keeping an eye in Whitbread, who Phil is also a fan of and a shareholder of alongside yourself... Crozier isn't the business wrecker or splitter that is being considered... however he has something, as most of the companies do well for a good period during his tenure..."
Yes, we had Oakley in 'Moneyweek' last week, highlighting WTB as his single best investment idea for 2018! Strong stuff indeed, and lovely to see, I thought... and then I remembered he was a m u p p e t. Okay maybe not... but his view did seem predicated on the break-up of WTB, and the separate parts being worth more like £50 than £40, and while I think that is indeed the end-game, I am really not sure it's a story for this year, or even next.
I do like Crozier and I agree, there is definitely "something" about him... but you have to be careful about putting too much on any one guy - anywhere. And with Crozier, this is his first Chairman (and non-exec, not to forget) gig - a somewhat different ball-game from his CEO roles thus far. It might depend what other "portfolio" roles he takes on in due course...
Bill - summary points I took straight from the article - reasonably fair assessment as you pointed out and useful to see it up against it's 3 peers, irrespective of the different business models of Britvic and Barr.
I'm interested (loosely at the moment) in this, as I offloaded a chunk of Britvic at a 50% gain + divis - and partly due to the debt load being rather hefty at Britvic.
I'm also keeping an eye in Whitbread, who Phil is also a fan of and a shareholder of alongside yourself.
Crozier isn't the business wrecker or splitter that is being considered as you mentioned on the WTB board, having been quite sedentry at ITV, however he has something, as most of the companies do well for a good period during his tenure.
Interesting article... notwithstanding my long-standing reservations about old Oakley (a bit of a wood-from-the-trees man, and he relies far too much on financial screens of third-party data, rather than digging into the real numbers directly), this is by and large a reasonable and balanced assessment.
"... ROCE in slight decline due to 2015,16 acuisitions... High ROCE, like Fevertree is largely due to outsourcing manufacturing..."
You would expect any company making acquisitions to see ROCE fall - you are adding new, current cost assets to the often very-historic, heavily written down balance sheet values of existing assets. Do you think RB will show ROCE on the Mead Johnson deal matching their historic ROCE rates - or anything like it?! Maybe in 10-15 years time...
It is one reason why ROCE - as opposed to true return on incremental investment - is such a potentially misleading, backward-looking and hence dangerous metric. Another reason being this issue of outsourcing - it means that "ROCE" on reported balance sheet values is simply not a meaningful measure of true economic returns on capital.
I also note that his "debt to EV" data looks odd - and doesn't seem to acknowledge that NICL has substantial net cash on the balance sheet, and has had for a while (as per later table of forecasts).
"Saudi economic weakness has slowed growth - also blockage in Middle East
Despite share price decline the P/E is still up at 20 and seems still too high given the expectation os little or no growth, and perhaps too high for a trade buyer.
Hopefully Oil back up around $70 means the Saudis will be drinking more Vimto again! Not sure if that correlation works, but I like to think so... And I did see some talk, in recent weeks, that the Yemen blockade had now been lifted? Could mean that the constraint on international growth is relatively short-lived...
But I wouldn't disagree too much on the conclusion... I see it as no worse than 'fair value' now, though it has been trading at a premium to this for much of the recent past. I see it as steady-but-moderate growth, rather than "no growth" - notwithstanding the near-term Middle East issues - with the brand equity, balance sheet and cash flow qualities justifying a P/E somewhat higher than otherwise would be the case - but not necessarily the near-30x it's been up at before.
And we'll have to wait and see on the "trade buyer" front - he could still be right, but there has to be more chance of interest down below £15 than there was up near £20! In the meantime, I am holding what I have - I have sold down my holding here progressively over the years (the latter two tranches well above the current SP, so not too unhappy there), but retain a reasonably big position.
Interesting article comparing to Fevertree, Britvic, Barr.
1. ROCE in slight decline due to 2015,16 acuisitions
2. Vimto not growing and still represents 77% of the business
3. UK represents 3/4 of business
4. Growth of late has largely been due to the 2 aquisitions
5. Saudi economic weakness has slowed growth - also blockage in Middle East
6. Despite share price decline the P/E is still up at 20 and seems still too high given the expectation os little or no growth, and perhaps too high for a trade buyer.
7. High ROCE, like Fevertree is largely due to outsourcing manufacturing
8. Quality control of manufacturers is a constant focus but so far has been good.
Games -- Love to see this lower still and I might pour myself a nice Vimto !!
"... trading is very good to be fair/well outpacing the median ... but yemen/Saudi arabia is a blow certainly next year with Ramadan .....this could go on a bit as well . input costs on the rise too .the market is merciless at the moment to the slightest bit of bad news..."
Yes, we have had an unusually good run with this - stretching to several years of consistently solid reporting - so we were probably over-due some kind of setback. And even though the SP had already come back quite a way from the recent highs, I feared the worst from a market in its current mood - as per valeite... so not a surprise to see the initial mark-down. But heartening to see the rapid recovery - perhaps the market is indeed fairer minded than it sometimes seems?
The fact that underlying trading is mostly still pretty strong - actually, a bit stronger than the generally moderating (though still good enough) trend of recent times - has clearly not gone unnoticed. But I did see something on the news about the port into Yemen being opened up again, so perhaps this is also behind the continuing bounce-back?
As we stand, we are all the way back to where we were pre-update, and looking to push higher... it's hard to make a strong case for much more, the metrics were looking very stretched up around £19, even given the formidable track record. As of now, prospective P/E around 23x, c.17x EV/EBITDA, a FCF yield around 3% - hardly cheap, but no longer excessive IMHO, given the prospect of further growth as and when the specific headwinds either unwind or at least stabilise, added to the super-strong balance sheet and "quality" of the strategic story and track record.
I have gradually sold down my holding to a still-significant but no longer dominant chunk of my portfolio... no plans to add to this, but equally I am not feeling compelled to take any further profits at these levels. A solid HOLD for now.
Vimto along with a poke of chips - takes me back to my youth ( a long time ago).
I don't think modern day Vimto taste exactly the same, but then my taste buds are a bit older. So I have a sentimental attachment to Nichols, and I'll be sticking with them.
trading is very good to be fair/well outpacing the median in the soft drinks market/exporting is good /divi up 10% but yemen/Saudi arabia is a blow certainly next year with Ramadan .....this could go on a bit as well . input costs on the rise too .the market is merciless at the moment to the slightest bit of bad news so I think it's a hold for me.....it's still a good business methinks
"Vimto maker LSE:NICL:Nichols has long been the toast of investors thanks to its progressive dividend, strong balance sheet and geographic diversity. These qualities are why the AIM company's share price surged to a record high in the summer and ..."
Although sugar free is important here, the important Middle east consumers enjoy the sugar content and could even be a reason for its popularity around Ramadan. Excellent company with a good future imho.
NICL rejigged less sugar formula &sugar free drinks seem popular/extended price promotions keeping vimto sales healthy/international sales growing /some margin pressure/healthy divi increase......I do like this business!
"just 2 months after suggesting sell (£13.65) now saying hold ...target £16.2 .i sometimes think analysts only exist to make weather forecasters look good "
I won't defend the analysts here too strongly, looks like a classic case of share price chasing.
But I have some sympathy with them with this one... now defying gravity yet again, pushing £18.50 today!
Not that I am complaining, of course, but difficult to rationalise... up to 28x actual P/E now (c.26x forward), over 20x EV/EBITDA, and yielding well under 2%, even on the somewhat accelerated payout.
I would imagine, merely some marginal buying interest - against a loyal shareholder base (why wouldn't we be?) which ain't selling! For the most part... At these vertiginous levels I may have to bring forward my next top (sic) slicing manoeuvre. But only a slice, of course....
Analysts have never existed to predict future share prices, they rarely have more clue than a pair of unbiased dice or a blindfolded man in front of a dartboard. The sole reason for their existence is (and always has been) to try to generate some interest in any particular share; buy, sell, it doesn't matter as long as it generates some activity, i.e. commission for the broker. So any excuse to come up with any old mumbo jumbo is fine as long as no one can prove they are actually lying.... which no one ever can.
Current day rules say they can't simply say buy everything, they have to put some sell indicators out there so a share that has a relatively small market cap and has come a long way fairly quickly is always going to be a likely candidate. Why smaller cap shares you might ask? Because the analysts are very unlikely to get any fees from these companies (unless they already do so) so it doesn't matter upsetting them that much with a sell recommendation. Doesn't cost them anything and they can save a buy for someone who is giving them so sort of fee.
If you can get an analyst's recommendation actually on paper then as long as that paper is soft and absorbent, there is one decent use to which you can put it. Otherwise they are a complete waste and anyone who believes one is (IMO) a fool.
"... with £40 million in cash and a dividend of of just under 2% would it be sensible if they were to give us some of that back by way of special dividend? Just a thought "
Yes, as per my previous post, I think the case for something along these lines is getting increasingly compelling.
It would be churlish to criticise them for failing to manage their shareholders' capital effectively, given the returns they have delivered. But still, to be picky - they are currently earning only around 0.5% finance income on the cash balances. Difficult to put up a defence for hoarding shareholder's money at that level.
There is a nod of acknowledgement in the full-year DPS increase of 15% vs EPS up 10% - in recent years they have been too stingy in even ordinary dividends IMHO. But this £40m is nearly 4x the current annual dividend, which in any event is more than comfortably covered by FCF (of £16-18m pa. in past 2 years). They clearly want to retain firepower for further bolt-on acquisitions - but these have generally been pretty small scale, and of course, making acquisitions just because you have the cash on hand is one of the worst reasons for doing so.
FWIW I would like to see them return at least half of the £40m, most likely by way of special dividend - more difficult to justify a share buy-back at the current SP, though this would still be value accretive IMHO, given the balance sheet structure and current returns on cash. And to see them, at the same time, sustain the trend of DPS growth > EPS growth for the foreseeable - they do not need the current very conservative cover levels (2.3x EPS, 1.7x FCF), notably above market averages in both cases.
I have held here for a few years great share good solid business , however just a thought with £40 million in cash and a dividend of of just under 2% would it be sensible if they were to give us some of that back by way of special dividend? Just a thought
"What struck me about the latest results is the enthusiasm shown by the CEO for the biznay, and the fact that they are clearly clever about using social media, including the trendy Snapchat thingy, to access the yoof market."
LKH - yes, they haven't put a foot wrong for some time now.
But it's been an interesting trajectory. When I bought in, some 15 years ago or so, they had done nothing for a while - would'ya believe, I bought them as a 'value' / high-yield micro-cap play! They then continued to do nothing for a couple of years, before taking off - never to look back, at least hitherto. Who knows why, just a bit of judicious marketing oomph perchance - or maybe they just got lucky? I certainly did - I'd probably be lying if I pretended other...
"It's too dear for me to get in now, especially with such a high proportion of sales being in Blighty where growth is hard to envisage, but I shall follow developments with interest."
Quite - I am the last person to buy a 26x P/E, and I continue to use them as a source of funds for multiple investments elsewhere... investments which, in all probability, have failed to keep pace with what the Vimto team would've done with it. C'est la vie - that is why they are there and I am here, I suppose...
I keep on expecting them to hit the wall, all good things etc... and aw' that. But they haven't yet - after a few years of stellar growth, things have matured somewhat in recent years, but as I say it is the consistency of current delivery which demands respect (and the premium rating) as much as anything.
My recent approach has been to sell a tranche ahead of full-year trading updates, just in case the chaps either side of the Sahara have suddenly stopped buying the stuff, and I will likely do the same again as long as it continues. No-one ever lost money taking a profit, as Uncle Warren keeps reminding me, but there is also the "run your winners" thing ringing in my ears. Good job there is an investment adage to cover all bases....
You done good, m8. I came across Vimto regularly when I worked in Saudi Arabia many years ago and wish I'd piled into Nichols then. Say what you like about the sons of the desert - once they develop a liking for summat they are incredibly loyal to it, and them Saudis do love their Vimto. Good to see that them Africans like it too, though not sure how well fixed the Guinea lads and Sudan homeboys are for klebbies.
" the profile is not too different from the likes of large-cap consumer 'peers' Diageo, Unilever, Reckitts"
You're probably right. While one might worry a bit about the sugar content of Nichols' drinks it's good to see that the "no added sugar" proportion of total sales is marching steadily upwards.
What struck me about the latest results is the enthusiasm shown by the CEO for the biznay, and the fact that they are clearly clever about using social media, including the trendy Snapchat thingy, to access the yoof market.
It's too dear for me to get in now, especially with such a high proportion of sales being in Blighty where growth is hard to envisage, but I shall follow developments with interest.
"just had time to read the prelims to 31/12/17 and a splendid read they are too.... clearly a well managed business and a solid hold for me"
Valeite - indeed, couldn't agree more!
It is the consistency of the delivery which impresses most.... sales up 7%, EBIT up 9%, EPS up 10%, DPS up 15%. Solid sales growth - and broadly based across pretty much all segments and geographies - translating to something better in profits growth with a bit of positive operational gearing. Not so far from the old 'Tobacco model' which historically has delivered such consistent returns for investors there - only a bit better all round.
Valuation update: P/E 26x actual (c.24x forward), 19x EV/EBITDA, FCF yield just under 3%, divi yield 1.7% (c.1.9% forward - possibly better), with the divi very nicely covered (broadly 2x) by both FCF and earnings. While undoubtedly at the high end of the (reasonable) market range on most metrics, the profile is not too different from the likes of large-cap consumer 'peers' Diageo, Unilever, Reckitts, etc - so I see it as perfectly sustainable as long as this consistency of performance continues, as it should be able to at least match the large caps on this going forward.
One interesting quirk in the statement - the net cash balance continues to grow very nicely (up to £40m), yet not a mention of this at all? One of these days they are going to have to consider what to do with this... In the meantime, the balance sheet and indeed all financials are admirably and unusually clean.
I'll probably take another slice off in due course - it's still comfortably my biggest holding. But I am not seeing any rush on this in the wake of these sort of figures.
just had time to read the prelims to 31/12/17 and a splendid read they are too .vimto increases its popularity ......the shift to sugar free is going well/ aquisition a sucess/ slight margin increase/keeping cost increases under control / confident divi increase.....clearly a well managed business and a solid hold for me
"really pleased to see our business trading robustly in a difficult market .nice to see the vimto brand is gaining in popularity .a solid hold for me with a nice bit of divi "
Yes, continuing solid delivery, sales up over 7% - which should translate to something slightly better for EPS and DPS growth, in line with current forecasts.
But not quite the explosive growth of years gone by... I sold a tranche of shares yesterday, as previously anticipated, but retain a pretty sizable holding. The (increasingly long) track record of consistent delivery deserves a high rating, and indeed my continuing support, but it's still a rating (25x current P/E, 20x EV/EBITDA, forecast yield just 1.7%) which remains vulnerable to any hint of the momentum running out of steam.
Like you I like to top slice holdings when they are getting disproportionately large. Was lucky?? with last one when sold GBG at 300p and subsequently plummeted to 240ish......balance now recovering in a fairly steady way. Recycled profits into ZYT which had eye on for a while and which currently up 10% (you will note these are AIM and potential BPR so try and spread risks within subset of ISA account)
"Beginning to get a bit of vertigo unless someone can provide additional tangible positives?"
Trading update next Tuesday, 10th Jan.
I agree on vertigo - at some point the lofty valuation has to look exposed. Growth metrics remain consistently good hitherto, but no longer stellar.
I am thinking of taking another slice off - it's been a wonderful performer for me over a long period, I have sold tranches all the way up and they've always carried on up to ever greater heights... but this pattern has to break, sooner or later.
Even after these sales, it's still my biggest single-stock position, and I intend to retain a pretty big holding...
Nichols Plc engages in the production and trade of beverage products.The company engages in soft drink sales.It operates under the following brands: vimto, levi roots, sunkist, and panda.The company operates through two segments: Still and Carbonate.
<b><u>Valuation 2016e 2017e</u></b>
P/E ratio (Price / EPS) 25,3x 24,2x
Capitalization / Revenue 5,19x 5,02x
EV / Revenue 5,20x 5,03x
EV / EBITDA 19,9x 18,9x
Yield (DPS / Price) 1,68% 1,80%
Price to book (Price / BVPS) 7,02x 6,01x
Yes, I think bizarre is the right word as the great majority of sweet fizzy drinks on offer in supermarkets are already sugar free. If the Chancellor wanted a genuinely unhealthy target he should have taxed chocolate based confectionary such as Mars bars as they contain alot of fat as well. Sugary drinks are fat free. If a TV chef (Jamie Oliver) advises a politician about science related health matters, this is the ridiculous result. I think I had better stock up on Vimto.
soft drinks business has made enormous progress in reducing sugar content and this is the reward .the press are reporting the cost of a canned drink will rise to perhaps 70 p .well i get my vimto from home bargains for 25 p .off topic ,i bought some walkers low salt crisps from home bargains (reduced in price because they tasted rubbish ) but remembered my childhood with little blue bags of salt .so i added some salt and they tasted fine .
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