Kerry Group shares a good buy
In a review of Irish equities, NCB focused on Irish food stocks and identified strong growth prospects for Kerry Group, Fyffes and IAWS while perceiving a number of concerns at Glanbia.
Analysts Paul Meade and Jane Riordan note Kerry Group ranks as one of the top ten global ingredient manufacturers, serving the top 50 global names in the food industry: “It has a very diversified customer base in a defensive sector delivering organic growth levels of 4%-5% (in line with the top food manufacturers) and is well positioned to deliver eps growth of 10%+ as lifestyle convenience foods drive growth.
“Kerry implements a highly focused acquisition strategy in tandem with its R&D to achieve global leadership across many high margin niche ingredients sectors, currently focusing on expanding its flavours business to sales of €500m in the next five years.”
Meade and Riordan believe the Kerry business model is well tested, having delivered earnings ahead of expectations during the challenging 2000-2001 period, during which its US customer base witnessed rapid consolidation: “Kerry is on track to deliver double-digit earnings growth again in 2003 despite adverse currency impacts on US translated profitability. This will represent the 18th year of achieving such growth. The stock is trading at very large discounts (50%+) to our selected basket of international peer on a PE basis, while its EV valuations display similar attractive ratings relative to peer consumer food groups.”
NCB note that Fyffes investment strategy is focused firmly on delivering bananas to the large European retailers from modern programmed ripening centres, which ensure high quality fruit with low wastage. “The current Dollar Euro FX rates favour Fyffes’ earnings with a 2% gain for every 10% weakening of the Dollar. Year-end cash should reach €200m and the yield at 4.5% is a key attraction.”
NCB noted Glanbia has some way to go in terms of new product development to insulate its performance from the volatility of commodity dairy returns, which limits margin expansion to historic levels.
Commenting on Greencore, NCB said a return to EPS growth, falling debt levels and its current dividend yield of 4.9% should support the stock.
“The company is currently examining its options regarding further restructuring of its primary processing businesses (sugar and malt). These options may include disposals, which may have a material earnings impact in the short term while yielding cash for debt reduction,” NCB added.
