Transition To B2B Taste & Nutrition And Accelerate 20 Will Strengthen Future Prospects

Key Takeaways

• Kerry Group's transition to B2B Taste & Nutrition and biotechnology focus positions it for growth through innovation in high-demand ingredients.
  
• Growth in emerging markets and sustainability focus could enhance revenue, net margins, and long-term partnerships.
  
• Challenges in China, emerging market risks, and recent divestments may impact Kerry Group's revenues, margins, and financial stability amidst currency and growth uncertainties.

Catalysts

Provides taste and nutrition solutions.

• Kerry Group's transition to a pure-play B2B Taste & Nutrition company and a focus on biotechnology solutions position it for future growth, potentially enhancing revenue through innovation in high-demand ingredients.
  
• Strong growth across emerging markets, particularly in the Middle East, Africa, LATAM, and Southeast Asia, could significantly boost revenue as these regions expand.
  
• The implementation of Kerry Accelerate 2.0, focusing on footprint optimization and digital excellence, is expected to drive annual savings of €100 million by 2028, improving net margins and overall profitability.
  
• Continued strong performance in foodservice channels and a robust innovation pipeline in North America could lead to significant volume growth, boosting revenue and potentially increasing earnings.
  
• The focus on sustainability and the reduction of emissions, as well as nutritional reformulation capabilities, could enhance Kerry's reputation and foster long-term partnerships, benefiting revenue and possibly leading to higher net margins.

Kerry Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kerry Group's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.7% today to 11.3% in 3 years time.
• Analysts expect earnings to reach €957.8 million (and earnings per share of €5.92) by about March 2028, up from €673.4 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 20.1x on those 2028 earnings, down from 23.4x today. This future PE is greater than the current PE for the GB Food industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 3.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.62%, as per the Simply Wall St company report.

Kerry Group Future Earnings Per Share Growth

Risks

• The challenging market conditions in China and softer growth in the region could impact revenue, particularly in regions such as China where the market dynamics remain difficult.
  
• The disposal of Kerry Dairy Ireland might impact the overall revenue and cash flow of the company initially, affecting net margins due to the resulting dilution of earnings from this recently divested segment.
  
• There is a foreign currency translation headwind due to the adverse movement in some emerging market currencies against the euro, which can affect net earnings.
  
• Kerry’s investment and expansion in emerging markets carry uncertainties and risks, including political and economic instability, which could impact the expected revenue growth and margins negatively if conditions deteriorate.
  
• The planned cost of the Accelerate 2.0 savings program, aimed at optimizing footprint and enabling digital excellence, could impose significant financial strain upfront, potentially affecting net margins if the expected savings are not realized as anticipated.

Valuation

• The analysts have a consensus price target of €110.3 for Kerry Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.5 billion, earnings will come to €957.8 million, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of €95.15, the analyst price target of €110.3 is 13.7% 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.