Kerry Group set to upgrade five-year earnings as foreign market expands

KERRY GROUP is expected to upgrade its five year-earnings targets when it revisits its five-year plan in June.

A new report from Merrion Stockbrokers said they expect Kerry will revise targets in June when it updates its five-year plan.

The brokers say they “expect guidance on organic volume growth, trading margin growth and EPS growth to be increased” from current levels.

The report states: “We are confident that growth can be driven by the success of the group’s internal restructuring, increasing exposure to emerging markets and efficient R&D activities.

“We also believe that potential dilution of the co-operative’s holding in Kerry is likely to boost liquidity for the shares in the near term. We are upgrading our recommendation to Buy, with a target price of €33.”

Shares are currently trading at above €27 per share.

In line with others, Merrion says the new market strategy adopted under current chief executive, Stan McCarthy, underpins a strong positive outlook for the group in the future.

Merrion expects Kerry to increase its guidance for organic volume growth to 3% from 4% previously.

It said: “The successful implementation of the Go-to-Market strategy and 1 Kerry programme should continue to yield strong sales growth.”

It also notes the company performed “favourably against its peer group” but is expecting volumes to be adversely affected by necessary price increases.

Research & Development will also drive growth, given that between 12%-15% of annual sales for ingredients and flavours are generated through new products.

“We believe that Kerry’s evolving geographical footprint will further boost growth, as it increases its presence in Asia Pacific and emerging markets, while reducing exposure to Ireland.”

Group sales being driven from the high growth Asia Pacific region has doubled to 10% while the group’s exposure to the home market has halved to 12% over the last decade.

Total exposure to emerging markets is continuing to grow and is now at around 19%.

Merrion points out that Givaudan, an international rival, has delivered lower organic growth than Kerry since 2005, but has issued guidance of between 4.5%-5.5% organic sales growth in its five-year plan, launched in August 2010.