Nichols shares leave bitter taste as revenues fall flat

British soft drinks producer, Nichols plc (AIM:NICL) watched its shares leak value as its revenues slid down during the nine months to September 30 2020.

The company’s statement said that, “As anticipated in the Group’s Interim Results in July, the ongoing Covid-19 pandemic has continued to impact the soft drinks industry.” While it enjoyed ‘strong’ 5.8% value growth in its core Vimto brand, and a 10.5% rise in year-to-date revenues in its African business, the company saw a 45.2% reduction in its Out-of-Home (OoH) sector during the third quarter.

Amid ‘very challenging’ trading, and outlets either being closed or having reduced capacity, its packaged, frozen, post-mix and technical solutions all suffered a slump in demand. With this, the company’s total revenues fell by 16.5% year-on-year, to £91.7 million.

Nichols said it has been focusing heavily on cost control activities, with a mind to ‘build back better’ from the pandemic. Having reviewed its operational structures, and attempted to reduce its marketing investment, the company said that it will make staff redundancies by Q1 2021.

Keeping in mind the lingering uncertainty of COVID risk factors, the company has offered an £11 million to £14 million adjusted profit before tax guidance for Q4. Nichols added that company cash generation has continued to be ‘very positive’ through 2020 – with cash and cash equivalents totalling £45.4 million at period-end.

Speaking on the results, Non-Executive Director, John Nichols, said: “As part of our ongoing focus on ensuring the Group has the right structures in place to deliver its long-term strategy, the Group has taken the difficult decision to propose, subject to consultation, that a number of roles are removed from our structure. These difficult decisions have not been taken lightly and I thank all Nichols colleagues for their continued hard work and commitment.”

“Whilst recognising the current and near-term impact of the pandemic on the soft drinks market, the Board continues to believe that Nichols, underpinned by the strength of the Vimto brand and the Group’s diversified business model, remains well placed to deliver its long-term strategic ambitions.”

Following the update, Nichols shares lost their pop, falling 5.83%, to 1,130.00p a share 19/11/20. This price is behind its post-pandemic high of 1,387.50p, and around 6.2% short of analysts’ target price of 1,200p a share.

Analysts currently have a consensus ‘Hold’ stance on the stock; it has a p/e ratio of 23.69, versus the consumer goods average of 52.90; and the Marketbeat community give it a 54.11% “underperform” rating.

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Senior Journalist at the UK Investor Magazine. Also a contributing writer at the Investment Observer, UK Property Journal and UK Startup Magazine. Postgraduate of King's College London with a specialisation in Business Ethics. Interested in Development Economics and David Hume.