Non-executive director cashes out of Kerry

Food and ingredients specialist Kerry (KYGA) has proved relatively resilient during the Covid-19 crisis. Revenue dropped by just 5 per cent year-on-year in the nine months to 30 September as price increases and acquisitions were unable to offset lower volumes.

The biggest impact has been in the taste and nutrition business which accounts for more than 80 per cent of total revenue. With the closure of the hospitality industry, foodservice volumes plunged by almost two-thirds in April. But this had rebounded to a 10 per cent shortfall in September as restaurants around the world reopened and adapted to demand for takeaway and delivery orders. Foodservice weakness has been partially offset by growth in retail sales volumes as consumers continue to gravitate towards plant-based and more nutritional products.

Despite the tougher trading environment, Kerry’s M&A appetite is undiminished. The group spent more than €200m on acquisitions in the third quarter which includes Jining Nature, a leading savoury taste company in China. These investments haven’t stretched the balance sheet, however, with net debt (excluding lease liabilities) having fallen by a tenth from the June half-year position to €1.8bn.

Against that backdrop, independent non-executive director Hugh Brady recently sold all of his shares for a little over €145,000. No reason was given for the transaction. While it’s never ideal to a see a company’s director wind down their stake, we’re not overly concerned by this disposal. Dr. Brady’s holding was equivalent to much less than 1 per cent of Kerry’s issued share capital and with the group’s shares gaining momentum over the past month, they are now sitting higher than his €116 selling price.

Kerry is guiding that full year adjusted EPS will come in 8-11 per cent lower than the 394¢ seen in 2019, although analysts are predicting this will bounce back to above pre-pandemic levels in 2021. While a forward price-to-earnings multiple of 30 does make for a rather expensive entry point, it doesn’t seem unreasonable in light of the promising long-term outlook. As food companies increasingly outsource product development, Kerry has made itself an integral part of its customers’ supply chains, positioning itself it as the ‘go-to’ provider for flavour and nutritional solutions. It should therefore benefit from structural growth drivers such as the shift to more natural, environmentally friendly and healthier food. Buy at €119.

Last IC View: Buy, €110, 04 June 2020