Merrion Stockbrokers’ Niamh Brodie said IAWS was trading on 12-times forward earnings despite its strong growth rate and attractive reinvestment opportunities Ms Brodie rates the shares a buy and has a price target of €7.40 on the company.
IAWS’ north American interests are set to drive the growth story in the shares.
The joint venture with the Tim Hortons chain is set to contribute to profits for the second half of the financial year to the end of July. IAWS is now supplying around 1,600 branches of the chain.
The company’s Cuisine and Pierre brands continue to grow revenue at 10% in Ireland and at 10-20% rate in Britain, Ms Brodie said in a research note.
British brand Delice is growing at 10%. Although the London market has slowed down considerably, the company continues to do well through expansion into regional areas of Britain.
The company is currently fully integrating CdF, Pierres and Delice, combining purchasing, distribution, and telesales divisions. Costs and benefits will not be felt until next year.
Merrion will take $1m or 1.5% of EPS off the model to reflect this delay in the expansion of Cuisine’s margin.
However, this will have benefits for future margin expansion. Roma continues to perform well for the traditional food operation and will be ahead of last year.
Ms Brodie said IAWS management did not regard CAP reform as a material threat to the long-term profitability of its agribusiness operations.
“The key to Ireland maintaining output is the quota for milk and beef within the country.
If smaller producers go out of business, the quota will be recycled back to larger producers, so there will still be a similar level of dairy output and a similar animal population for IAWS products.
“In addition, larger farms and lower dairy prices will drive more intensive farming (using more fertiliser and feed).
"Consequently, the company is happy that while this business is mature, it will continue to produce a steady contribution for the group over the long term,” she says.