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ISEQ holds- Kerry Group jobs

Wednesday, October 10 08:53:41

The ISEQ is unchanged this morning at 3,268 following yesterday's significant falls in equity markets. Kerry Group news dominated the domestic media and the announcement is examined in detail by NCB Stockbrokers:

Kerry announced a new E100m R and D centre in Naas, Ireland yesterday. The 28 acre site c.30km South West of Dublin will accommodate 800 people in 2015 and a further 100 positions when fully commissioned by mid-2016. Construction is expected to start in early 2013.

Analysis: The facility will likely be based on Kerry Group's North American R and D centre in Beloit, Wisconsin. We visited this impressive centre in April. The facility brings under one roof all the stages of new food and beverage product development from initial idea generation all the way to testing the viability of production. The centre vastly improved Kerry's speed-to-market of new products in North America from c.18 months to just c.4-5 months. The facility is very popular with Kerry customers, generating over 500 customer visits per year, and aiding new contract wins.

In addition to its North American R and D facility, Kerry has a smaller facility covering the Latin American region and plans a facility in Asia in the future. This would give Kerry global coverage. Conclusion and Action: The centre is part of Kerry's '1 Kerry' efficiency initiative, but the E100m investment is new and not part of any previously announced capex figure. However, E100m over 3 years is likely to be absorbed into operating cashflow quite easily. Following the success of the North American R and D centre in Beloit, Kerry has been considering different sites in Europe to construct a similar facility to support the EMEA region.

The selection of Ireland for the centre is a natural one not just because it is Kerry Group's home country, but also due to Ireland's growing reputation as a global leader in food - not to mention the reduced cost of labour in recent years and the likely government grants in support of the c.900 jobs to be created.

The announcement of a new European R and D facility was expected and will likely lead to savings at other European facilities as work is migrated to the new facility. Given the success of the North American facility we would expect it also to support volume growth in the EMEA region going forward. Kerry currently trades on c.11.3x FY13E EV/EBITDA and c.15.4x FY13E P/E vs. the I and F sector trading on c.16.2x P/E according to NCB Stockbrokers.