Food ingredient firms enjoy surge in market interest as earnings grow

Food ingredients companies, including Glanbia and Kerry Group, are enjoying a surge in market interest as weak food consumer purchasing is causing some investors to shy away from food product manufacturers’ shares, say market analysts.

JPMorgan Cazenove estimates that the European food ingredients sector on average will see 6% earnings growth in 2014, while they also predict that European food producers will see no growth this year.

Exane BNP Paribas has advised its clients to view Kerry Group as a good long-term investment. The firm’s brokers are citing Kerry’s deal to supply dairy ingredients to Chinese infant nutrition company Beingmate as showing how companies producing ingredients, scents and flavouring can benefit from the development of local players who are stepping up their game against multinationals.

“There are some very, very good businesses in that space, but I don’t think you can just bundle them all together, as you can see with Tate & Lyle,” said Exane BNP Paribas analyst Jeff Stent. “If you take a stock like Kerry, we’ve been buyers of that stock for as long as we’ve been analysts at Exane.”

Sucralose producer Tate & Lyle saw its shares tumble 15% last week due to a price war between sweetener companies in China.

Market analysts at Berenberg, the Hamburg-based bank, are also telling clients that some companies with a strong industry ingredient emphasis like Glanbia and Kerry are more resistant to weak consumer spending, notably the slowdown among consumers in new emerging markets.

Kerry Group’s share price has been consistently above €50 per share in recent months.