Shore Capital reiterates 'hold' on Nichols despite 'robust' top-line momentum
By Iain Gilbert
Date: Friday 16 Aug 2019
(Sharecast News) - Analysts at Shore Capital reiterated their 'hold' rating on drinks maker Nichols on Friday, as investments continued to curtail some "robust" top-line momentum.
Shore Capital said it continued to view Nichols as "a high-quality business" that was "well-positioned" to take market share in the UK, with the addition of a long-term emerging market structural growth stream.
The broker praised Nichols' out of home division for the 12.0% sales growth seen in the first half of its trading year, driven by good momentum across dispense, coffee and frozen, with its Icee slush contract with Cineworld contributing from the second quarter.
"Frozen in particular is benefiting from recent investment and innovation and is an area where we would not rule out further acquisitions with assets generally on offer at more reasonable multiples and with few buyers possessing the same synergy potential," noted ShoreCap.
However, with the stock revisiting valuation multiple highs and some uncertainties surrounding its Middle Eastern operations given a possible Saudi Arabian levy on drinks with added sugar and the ongoing conflict in Yemen, Shore Capital felt it best to remain at 'hold' for now.
While ShoreCap also noted the group's balance sheet flexibility, the broker said it continued to "have a preference for Fevertree and C&C".
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