Irish food and drink ripe for investors

THEY MAY not be the most exciting of stock market investment options, but food and beverage companies are enjoying a “remarkably” good run on the Irish stock market of late, displaying “evidence of their ability to withstand the recession”, according to a new research report from Bloxham Stockbrokers.

Joe Gill, a food stock analyst for Bloxham, notes that strong balance sheets, low equity valuations and recession-resilience have helped food stocks grow their share prices by 32 per cent since February.

The top performer in terms of share price is drinks group CC, where shareholders are enjoying a 129 per cent climb in its share price over the last six months.

“Who says food and beverage is dull and boring?” Mr Gill asks.

The report finds that the eight Irish agrifood companies listed on the Iseq index – Aryzta, Fyffes, Glanbia, Greencore, Kerry, Origin, Total Produce and CC – are in “remarkably good condition given the state of the economy”.

Most importantly for dividend-starved shareholders, Irish food and beverage stocks are displaying cash flows that give them the ability to fund dividend payouts, the Bloxham report notes.

Stocks that pay dividends have been thinner on the ground since the financial crisis ended the ability of banks to pay out.

Currency issues have generated one of the biggest headaches for Irish food companies in recent years, and Bloxham estimates that profits at the eight agrifood companies are on average 35 per cent exposed to the sterling zone and 15 per cent exposed to the dollar.

“Changes in currencies and economic data in these areas are key to performance,” Mr Gill writes.

However, a 13 per cent rally in sterling against the euro since January is helping the Irish divisions of the food groups, while UK profits are being translated at a “more benign” exchange rate.

“This gives us some optimism for the second half of the year ahead of the pending reporting season.” There is still weak consumer demand to contend with in the Irish, UK and US economies, as shopping habits shift in the direction of lower-priced ranges.

Despite this “tough” environment, Irish food groups may soon embark on an expansion trail, Bloxham notes, as “having largely avoided the carnage caused by inflated valuations amid the credit bubble”, they can now “significantly enhance their market positions globally over the next couple of years”.