I reckon the best UK shares today have proved the resilience of their underlying businesses in the coronavirus crisis. Indeed, some firms and sectors have been devastated by the pandemic while others have traded well through it. And those survivors could do well in the next bull market when it arrives.
So, I’d be keen to buy the shares of strong businesses while their prices remain depressed. And I’m keen on two companies operating in the defensive drinks sector right now.
Why I reckon these are some of the best UK shares
Soft drinks supplier AG Barr (LSE: BAG) saw its business affected by the lockdowns in the spring. But the interim results report released in September shows the firm coped well with the challenges caused by the crisis. Indeed, the company kept trading and worked hard to reduce its costs and conserve cash. The directors stopped all discretionary capital spending and halted shareholder dividends.
Revenue and earnings slipped a bit in the six-month period to 25 July. But the company’s cash performance was robust. Net cash from operating activities rose by more than 100% year-on-year and net cash on the balance sheet shot up to more than £30m compared to just under £5m the prior year.
Although sales via the hospitality sector declined, at-home channels did well in the period. And I reckon the firm’s brands such as IRN-BRU, Rubicon and Funkin have proved their resilience and will continue to serve this defensive business well. Meanwhile, with the share price near 472p, the forward-looking earnings multiple is just below 20. And City analysts expect earnings to rebound by a high single-digit percentage in the trading year to January 2022.
The stock is still around 20% below its pre-coronavirus level in February. But AG Barr is a coronavirus survivor, and as we enter the next bull market, I reckon the business and the shares will thrive.
Trading ahead of expectations
But AG Barr isn’t the only share I’d buy in the defensive soft drinks sector. I’d also be keen to own shares in Britvic (LSE: BVIC). The company has traded well through the crisis and updated the market on 20 October.
Sales through the peak summer period were “better than expected”. The directors explained in the update that trading benefited from the limited reopening of the UK hospitality sector since early July. There was also “strong” trading in the at-home channel across the company’s markets. Like AG Barr, Britvic performed well with cash. The directors expect the year-end adjusted net debt balance to be around £40m to £50m lower than last year.
Looking ahead, the directors acknowledge the economic outlook for 2021 remains uncertain. However, the company is “confident” about its long-term prospects and plans to “rebuild” investment in 2021 to support growth. The directors reckon Britvic is “well-positioned” to recover, supported by its brands such as Drench, Robinsons and J2O.
Meanwhile, with the share price near 799p, the forward-looking earnings multiple is just below 15. And City analysts expect earnings to rebound by almost 30% during the current trading year to September 2021.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended AG Barr and Britvic. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020