Rounding up prospects for food stocks
The recession-resilient nature of global food companies has seen their share prices outperform the overall stock market in recent years. Irish food and beverage companies have done better again.
The outlook for global food stocks this year is less positive. Revenue growth is slowing and rising commodity prices will moderate profit growth and food stocks look expensive after the rise in their share prices.
Some investors will be switching their holdings into higher risk sectors in 2013 as optimism increases of renewed economic growth in the West (except euro zone).
To stay invested with food stocks in 2013 look for companies that can demonstrate profit growth driven by internal developments, like recent acquisitions or restructuring, or are still relatively cheap.
Irish food stocks
After a very strong showing over the past two years, one might expect quoted Irish food stocks to move sideways for a time, as may be the case for the large global stocks. However, in many instances there are indeed specific factors at play which make several of the Irish companies worthy of some consideration.
To understand how some Irish food companies can have outperformed and at the same time still look an attractive investment proposition, it may be useful to put them into a broader perspective.
Whether by luck or design, Irish food companies have been forced at an early stage of development to expand in global markets.
This has set them apart from their international peers in the UK, for example, which could take the easier option of staying in their home market. Because of limited capital resources, they have also had to be very focused.
Interestingly, the quoted Irish food companies also differ quite markedly from their private Irish peers in a number of important ways: expansion abroad has been market-led rather than production-driven from an Irish base – this has meant looking at growth niches in sectors and countries of interest, typically with good margins; and using acquisitions aggressively to speed up the attainment of these objectives.
The result? Today, we have Kerry Group number one in global food ingredients, Aryzta number one in global par-baking, CC Group number one in global premium cider, Origin Enterprises number one in European agronomy, Greencore number one in UK own-label chilled foods and Glanbia number one in global sports nutrition products.
In short, they are all market leaders in niche markets internationally with their success reflected in strong share price appreciation, which we expect, can continue into 2013.
While all of these companies can demonstrate that top-line growth will continue in 2013 and beyond, stock picking has to have regard to the share price and value offered.