(KYGA) Kerry Group

Hi folks,

Just posted Part III of The Great Irish Share Valuation Project on my blog. I'm setting a Fair Value Price Target for every listed Irish company. So far I've valued almost 3 dozen companies, including Kerry Group:

http://wexboy.wordpress.com/2012/01/30/the-great-irish-share-valuation-project-iii/

I hope you'll take a look (plse don't hesitate to comment/email me), and perhaps become a regular reader.

Cheers,

Wexboy

Davy on 2012
Stock-picking in defensive sectors will be key to outperforming market in uncertain environment
04 January 2012
Barry Dixon
http://bit.ly/wzfNhF

Kerry turns gold
Created: 17 August 2011 Written by: Julian Hofmann
http://www.investorschronicle.co.uk/Companies/ByEvent/Results/Analysis/article/20110817/b08343c6-c8ad-11e0-8ae6-00144f2af8e8/Kerry-turns-gold.jsp

Kerry Group, maker of Kerry Gold butter, turned in a solid set of half-year figures despite some very challenging market conditions and steadily rising input costs. For example, free cash flow of €48m (£42m) compared poorly with the €117m achieved in 2010 and this was entirely due to rising commodity costs tying up increased amounts of working capital. In addition, the group faces a Competition Commission investigation into its takeover of frozen food specialist Headland Food which should report by the year-end.
Consumer food sales were up 5 per cent on a like-for-like (LFL) basis to €944m, turning in an trading profit 6 per cent higher at €64m. The UK market is intensely competitive but volume growth of 3 per cent offset a 1 per cent decline in the Republic of Ireland where consumers are hunting out bargain and discounted foods. Kerry's ingredients and flavours division saw LFL sales increase by 9.6 per cent to €1.97bn, with trading profit rising by a similar amount to €181m. The business had more success in offsetting the effect of raw material price inflation, with a better sales mix in the Americas a contributing factor in maintaining profitability. Chief executive Stan McCarthy reiterated guidance that Kerry would report full-year EPS growth of between 8 per cent and 12 per cent.
Collins Stewart forecasts full-year EPS of 211¢ (from 194.5¢ last year), subject to review post results.
KERRY GROUP (KYGA)
ORD PRICE: 2,661¢ MARKET VALUE: €4.67bn
TOUCH: 2,635-2,660¢ 12-MONTH HIGH: 3,044¢ LOW: 2,349¢
DIVIDEND YIELD: 1.1% PE RATIO: 14
NET ASSET VALUE: 962¢* NET DEBT: 65%
Half-year to 30 Jun Turnover (€m) Pre-tax profit (€m) Earnings per share (¢) Dividend per share (¢)
2010 2.42 162 75.6 8.8
2011 2.65 175 82.2 9.8
% change +10 +8 +9 +11
Ex-div:12 Oct
Payment:11 Nov
*Includes intangible assets of €1.95bn, or 111¢ a share
Guide to the terms used in IC results tables.
More analysis of company results
IC View:
GoodValue
Kerry continues to prove its resilience and a forward PE ratio of 12 represents solid value in a weak market. Good value.

Davy Research
http://www.davy.ie/LR?id=1217
Report
Kerry Group
(KYG ID)
In exclusive talks to acquire Cargill's flavour business
18 July 2011
John O'Reilly
Closing Price: 2930c Rating: Outperform 30/06/09
FACTS: Kerry is involved in exclusive discussions with Cargill to acquire the latter's flavour business. If concluded, the deal will give Kerry a global flavour footprint.

ANALYSIS: Cargill's flavour business, which is international (22 countries), has (for Kerry) the added importance of a significant presence in India, a market that Kerry has been appraising for expansion. Cargill's flavour business has operations in North America, Europe, the Middle East and Africa and Latin America and South America. Kerry's existing flavour operations, integrated within its overall ingredient technologies, has some overlap (geography, technology and end-use market) with Cargill's flavour business. If concluded, the deal will significantly extend Kerry's geographic and technology footprints in flavours. Flavour technology is a key driver of growth for Kerry ingredients in food and beverage markets.

Cargill had a long-established presence in the US flavour market from which it diversified overseas in the mid-2000s. In 2004, it acquired the UK Duckworth Group. Duckworth had flavour/flavouring manufacturing and sales operations in India, China, South Africa and the Middle East. The following year it acquired, at a cost of €540m, the food ingredients division of Degussa, the German chemical concern. In addition to flavour, the acquired ingredient technology portfolio also included hydrocolloids, texturants, blends and lecithins. Kerry's discussions with Cargill concern flavour only.

DAVY VIEW: No detail about the business is discussed, but its revenues are thought to be circa $200m. A 1.5x price/sales multiple would suggest a price of $300m (which can be comfortably funded from internal resources). This is entirely speculative (as any other suggested price would be). The more important points to note are that Kerry has good acquisition capability (will not overpay) and that deals for Kerry are not only accretive because their existing EBIT more than covers their interest and tax charges but because they typically add something (are accretive) to Kerry's existing operations. With Cargill flavours (should it happen), Kerry will have a platform for growth of its entire ingredients portfolio in two new geographies –India and Africa – while the value of this portfolio to existing customers and regions will be enhanced by the incremental technology that the deal will bring. As noted, Kerry's flavour activity is embedded within its total ingredients capability. For this reason, it tends not to be included in measurement of the sector or ranking within this. We have argued that its existing business ranks it as a top-ten flavour house.