I’ve had a watch on shares in FTSE 250 drinks firm AG Barr (LSE:BAG) for some time and my view has been that I’d like to purchase the inventory at or under 600p. As I write this, it’s buying and selling at 589p.

The difficulty is, it’s been at this degree earlier than and I’ve all the time thought there have been higher alternatives for me elsewhere. However I believe there’s a really sturdy case to be made for contemplating it at right this moment’s costs.

Funding thesis

The core of my funding thesis for AG Barr is straightforward – I believe earnings per share (EPS) are heading in the direction of 39p within the subsequent 18 months. And if that occurs, I believe the inventory is undervalued.

My precise price goal for the inventory is round £7.88. That is primarily based on 39p in earnings per share and a price-to-earnings (P/E) ratio of 20, which is roughly its historic common. 

That’s round 33% greater than the inventory’s present degree and it doesn’t embrace something when it comes to income progress or dividends. It’s the place my margin of security comes from. 

The inventory at the moment trades at a P/E a number of of 18.5, however I’m anticipating this to extend if profitability will increase. The large query, although, is are margins going to develop?

Integration

In 2022, AG Barr acquired BOOST Drinks Holdings in a deal value £20m. The affect on revenues was fast – since then, gross sales elevated from £269m to £411m. 

Income, nonetheless, have taken longer to catch up. Prices have been incurred through the integration course of and working margins fell from 15.6% to 12.3% in consequence.

At the beginning of final 12 months, nonetheless, the corporate indicated that margins ought to attain 13.3% by January of this 12 months and 14.5% in 2026. And the most recent report confirmed good progress on this regard.

AG Barr’s January replace reported margins of 13.5%, placing the corporate forward of schedule. However the inventory is roughly again the place it was final July, which seems to be like my alternative. 

What may go mistaken?

Given the truth that Irn Bru is someway each wildly standard in Scotland and desperately troublesome to export wherever else, I’m not that anxious about US tariffs. That could be a mistake, however I’m relaxed.

An even bigger concern, for my part, is the potential for inflation. Since my thesis for AG Barr is targeted on the corporate’s means to develop its margins, greater enter prices are the obvious menace.

There’s not loads the corporate can do to attempt to ward this off. I believe the very best transfer for traders is to attempt to search for a margin of security within the share price in case issues don’t go to plan.

I believe that’s there in the mean time. With a possible 31% acquire even with no contribution from income progress or dividends, the inventory seems to be very enticing to me wherever under 600p. 

Is that this my time to purchase?

Final time shares in AG Barr had been at this price, I missed out as a result of a there have been different investments that I assumed had been extra enticing. However I’m hopeful to keep away from this occurring once more.

With share costs falling, a variety of shares which have made their manner on to my shopping for radar lately. Nevertheless, if the AG Barr share costs stays under 600p, it’ll be the subsequent inventory I purchase.