Innovative Nutrition And Biotechnology Drive Growth In Emerging Markets And Foodservice

Key Takeaways

• Kerry's innovation in nutrition and sustainability is set to boost market penetration and future revenue growth.
  
• Expansion in biotechnology and emerging markets will enhance earnings and market share through higher-margin offerings and strategic growth.
  
• Deflation, market stagnation, and debt levels threaten Kerry Group's revenue growth, margins, and earnings expansion amid regional and portfolio challenges.

Catalysts

Provides taste and nutrition solutions.

• Kerry Group's focus on renovation and reformulation in its innovation pipeline, particularly through nutritional enhancements and sustainability improvements, is expected to drive increased market penetration and future revenue growth.
  
• Significant expansion and development in Kerry’s biotechnology platform, including proactive health, food protection, and preservation technologies, are anticipated to bolster earnings through higher-margin product offerings.
  
• Strategic growth in emerging markets, especially in Latin America, the Middle East, and Africa, where regulatory changes and strong regional performances present new opportunities, is likely to enhance revenue and market share.
  
• The structural tailwind seen in foodservice, an area in which Kerry believes it has unique positioning, is expected to provide sustained volume growth, thereby positively impacting both revenue and net margins.
  
• Kerry’s ongoing share buyback program and strong cash generation suggest potential enhancements to earnings per share, driven by both capital structure optimization and potential future growth investments.

Kerry Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kerry Group's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 10.1% in 3 years time.
• Analysts expect earnings to reach €941.1 million (and earnings per share of €5.7) by about November 2027, up from €661.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.4x on those 2027 earnings, down from 22.6x today. This future PE is greater than the current PE for the GB Food industry at 18.4x.
• Analysts expect the number of shares outstanding to decline by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.27%, as per the Simply Wall St company report.

Kerry Group Future Earnings Per Share Growth

Risks

• The pricing was 3.2% lower across the period due to deflation in input costs, which could negatively impact future revenues if deflation trends continue.
  
• Europe showed soft market conditions with overall volumes back by 0.5% year-to-date, potentially pressuring revenue growth opportunities within that region.
  
• The net debt at €1.9 billion, while reflecting good cash generation and capital investments, remains a burden that could affect net margins if cash flows alter unfavorably.
  
• The impact of the divestment of the Sweet Ingredients portfolio, resulting in a 2.3% revenue reduction, may present challenges in maintaining or expanding earnings in future periods.
  
• Lack of significant changes in market volumes despite customer promotional activity could indicate stagnating growth potential, impacting revenue and margin expansion if the market doesn't pick up.

Valuation

• The analysts have a consensus price target of €104.69 for Kerry Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €116.0, and the most bearish reporting a price target of just €90.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €9.3 billion, earnings will come to €941.1 million, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 5.3%.
  
• Given the current share price of €87.9, the analyst's price target of €104.69 is 16.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.