Kerry Group downgraded to hold

MERRION Stockbrokers has downgraded its rating on Kerry Group, believing the recent strong run in the company’s share price now fairly values the business.

In a 24-page research report, Merrion analysts said the Tralee-based company should see high mid-single digit earnings growth but the 18% rise in Kerry’s share price in the year to date now puts its value in line with other consumer food groups. It downgraded its rating from buy to hold.

Merrion said external factors, such as the weakening dollar, higher commodity prices and higher energy prices, are reducing the prospects for the company to beat profit forecasts.

The broker also said it believed that acquisitions made by Kerry over the last few years have added little to growth given the price it has had to pay out.

“Historically, Kerry has been associated with successful acquisitions that, made at a reasonable price, have added to growth and shareholder returns.

“The valuation multiples paid for businesses in both the consumer foods and ingredients sectors remain high so we do not expect Kerry to be able to drive significant growth from acquisitions in the near term.”

Merrion said that in absence of suitable takeover targets in the near term, share buybacks will positively impact earnings per share (EPS).

With EPS growing by just 1.6% in 2006 due to higher costs, Merrion said the downgrade with a price target of €23.