Kerry Group has modest beginnings, since starting operations in Listowel back in 1972, the company has grown from a small dairy business in Kerry to a major player within the global food industry. Millions of people now consume their products on a daily basis! They employ 23,000 people worldwide, reporting an annual revenue of €6.4 billion and €691.4 million net profit for 2017! Kerry Group went public in 1986, trading on both the LSE and ISEQ with a market cap of €15 billion.
Similarly to Glanbia shares, shareholders have suffered a tough time recently with the stock price dropping from an all-time high of €94.92 in December 2017 to today’s price of €83. Long-term shareholders can’t complain as the Group has a remarkable track record for delivering positive earnings growth over the last five years. Despite the pull back, the consensus among analysts is positive. 7 out the 15 financial analysts polled by the Financial Times believe they will outperform the market, the remaining 8 rate the company as a hold. The overall sentiment is slightly less positive in comparison to last year. The price targets set by investment analysts range from €78 to €96, with the median price being €89, representing an 8% increase from the current price of €82.10. It expects to pay out a dividend of €0.67 for this year.
Reasons to Buy
- Resilient business model that has posted a positive growth in earnings in each of the last five years. Over the last 40 years, Kerry Group has outperformed the vast majority of indexes and competitors.
- Generate strong cash flows that can be used to make more strategic acquisitions. Acquisitions are an important part of their strategy to aid growth in emerging markets. Since 2000, the Group have spent over €4 billion on acquisitions.
- Strong management team with decades of experience.
- Not overly reliant on one product or market.
Reasons to Sell
- Brexit will directly impact all Irish businesses operating in the UK. 30% of Kerry Groups annual exports are sold to the UK. Their share price has witnessed sharp declines based on news surrounding the uncertainty of Brexit. If customs regulations are enforced, it will negatively impact their competitiveness abroad due to increased costs and delays.
- Currency risks – the United States contributes approx 20% of their revenue, the dollar has performed terribly against the euro since early 2017, losing about 15% in value.
- Operate in competitive markets where it’s difficult to develop sustainable competitive advantages. Also their dairy business relies on massive volumes to combat low margins.
- Regulatory risks could negatively impact stock price performance.
I would avoid buying shares in the short term due to the uncertainty involving Brexit. Kerry Group could be a great long-term investment, a company with a long history of growth appeals to every shrewd investor. Investors will need significant patience to hold through volatile market conditions.