Investing in food a solid option in lean times

AS the economy faces into recession those in the food sector can take comfort form the fact that people have to eat.

It might seem obvious, but as growth slows orreverses food shares have tended to be more recession proof than the likes of the banks and the construction sector.

A quick glance at Glanbia, IAWS and Kerry show their share prices have done significantly better over the past 12 months than the banks or the construction sector.

Glanbia, the Kilkenny-based dairy and functional foods group is down by just 2% from last year’s high. IAWS is in the news for its proposed merger (takeover in effect) with Hiestand in Switzerland and is trailing last year’s high of €19.60 a share by 22% before lunchtime yesterday.

Kerry Group has also done well and is down by around 17% from the highs of last year.

Greencore is an exception to that rule and it was down 56% yesterday from last year’s high of €5.60 and was trading down at €2.51 in early trading yesterday, probably reflecting the negative outlook for its major property developments key sites in Mallow and Carlow, which previously housed the group’s sugar beet plants.

By contrast with the good stocks, Bank of Ireland is down close to 70%, AIB roughly 60% and the giant construction group CRH is off 55%, as the global slowdown in construction hits those two sectors.

Banking woes are compounded here by the view of British hedge funds that their funding will be stretched considerably in the 12 to 18 months ahead, as we face recession for the first time in 25 years.

Add to that the prospective hike in bank borrowing from the ECB in July and the outlook for the core construction and banking sectors just gets grimmer.

That grimness is reflected in how their shares have performed since last year’s peaks.

And has often been commented on in the past, food operations are always regarded as defensive stocks — in other words they tend to perform better in bad times because what they sell is essential.

The same is true of oil stocks and commodities, both of which have been in big demand as protection against the falling dollar and indeed falling share prices internationally.

In that context Irish food companies look to be well placed as the economy stares recession in the eye.

IAWS, which offers a range of convenience foods added to its expanding footprint just recently, when it effectively took over Hiestand in Switzerland stretching its global reach to places such as Japan.

In reality no company is recession proof if the economic slowdown gets bad enough and indeed the stock prices of the food group’s reflect that reality to some degree.

In Glanbia’s case it has come late to the party, having struggled to integrate after Avonmore and Waterford Foods merged to create Glanbia.

In the past few years non-core activities in the meat sector have been sold off giving the group a clear focus on milk, dairy based consumer foods, and an evolving, but strategic toe hold in the rapidly evolving functional foods sector.

Kerry Group is the old stalwart of the Irish good groups with impressive foot prints in consumer foods and ingredients while the management, under Stan McCarthy, is talking about doubling its size within six years.

In a time of market uncertainty and fears of recession it, like the other companies, should prove to be more recession proof than the banks and the building companies.

They have taken an enormous battering in the past 12 months as the property market collapses around them.