Morning Equity Briefing
Kerry Group
(KYG ID)
Reports stellar set of interims; upgrading FY 2010 and FY 2011 forecasts
Cathal Kenny
| Closing Price: | 2580c | Rating: | Outperform | 30/06/09 |
H1 results for Kerry came in 3% ahead of forecast at the revenue and EBITA lines. Continuing volume growth of 5.8% was the key metric that emerged from the interim statement. The H1 performance represented an acceleration on the Q1 out-turn (5.2%) and clearly demonstrates how robust Kerry's strategy and model are. In ingredients, continuing volume growth accelerated by 6.5%. The 4% continuing volume growth in consumer foods must be considered a very good achievement in the context of current grocery market conditions, particularly in Ireland. Organic volume growth in ingredients across regions was Americas +6.2%, EMEA +4.4% and Asia Pacific +15.7%. Group EBITA grew by 13% (ingredients +14%; consumer foods +10%). There was a 40bps rise in group EBITA margin to 8.4%. In ingredients, EBITA margin rose by 50bps to 9.2%. In foods, EBITA margin increased by 40bps to 7.1%.
A better-than-expected revenue and EBITA outcome drive a c.4% upgrade for FY 2010 and FY 2011. Revised 2010 and 2011 EPS forecasts are 191c (previously 184.5c) and 207c (previously 200c) respectively. We believe that the customer-centric nature of the Kerry development model is really paying off. Global customer alliances are deepening, giving Kerry greater visibility on revenues and access to further growth from its existing customer base. As the business returns to mid-teens EPS growth, there is further scope for the stock to bridge the ratings gap with some of its peers. Structurally, the business is moving into a new phase of growth that is not fully priced in. We reiterate our 'outperform' rating.
For further detail, see our research note issued September 1st.