11th Jan 2022 15:35
(Alliance News) - Liberum hailed AG Barr PLC and Cake Box Holdings PLC as two defensive stocks to have in a portfolio as inflationary pressures dominate market focus.
Irn-Bru owner AG Barr has greater scope than some to pass on price increases. Egg-free cream cake seller Cake Box has "multiple avenues for growth", meanwhile.
The broker rates AG Barr at Buy, with 655.0 pence price target. The stock was trading 0.6% higher at 509.00p each in London on Tuesday afternoon.
"AG Barr is an annual compounder where trading is relatively predictable," analysts at Liberum commented.
AG Barr has "strong brand equity", wide distribution channels and can be flexible on pricing and promotional activity to fight inflationary pressures, Liberum added.
In its results for the six months to August 1, AG Barr warned it did not expect to maintain current margin levels, forecasting "increased cost inflation".
Liberum added: "While expectations of high single-digit input cost inflation and mid-single-digit inflation in other areas in 2H'22E and into FY'23E, AG Barr expects FY'23E to be another year of sales and profit growth driven by volume leverage, pricing and innovation."
Liberum labelled Cake Box as a "one of the more defensive businesses in general retail in the current inflationary environment".
"It offers consistent high growth, margin expansion and strong cash generation as it leverages its asset and capex light model. The product range appeals to a wide demographic and demand is occasion led, making it less inflation sensitive. The group's scale gives it strong cost advantage in key raw materials versus competition. The pandemic has unlocked significant future growth opportunities in online delivery, pipeline of new stores and new channels are on the cards."
The broker added that Cake Box's pipeline of 62 potential franchisees has gone largely unnoticed by the market.
Liberum rates Cake Box at Buy, with a 470p price target. The stock was 1.7% lower at 356.00p each in London on Tuesday afternoon.
By Eric Cunha; [email protected]
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