Kerry Group's Fiscal 2021 Slightly Ahead With Guidance in Line; Shares Slightly Cheap

Kerry Group reported preliminary fiscal 2021 results with volume growth up 8%, driven by good performance in taste and nutrition (8.3% volume growth for the year and 7.2% in the fourth quarter) and higher-than-expected growth in consumer foods (6% for the year and 7.1% in the fourth quarter), which was primarily the result of strong performance in the recently divested meat and meals segment (with the remaining dairy business growing at low-single-digit rates) and soft comparables. The group trading margin was 11.9% up 40 basis points or EUR 876 million (higher than the EUR 865 million in our model at 12% margin). Regionally in taste and nutrition, emerging markets and Europe continued to perform strongly with sales up 14.4% (Asia-Pacific, Middle East and Africa region's growth up 11.3%) and up 9.9% respectively, driven by food service as out-of-home consumption continues to recover strongly. Management introduced guidance for fiscal 2022 of 5%-9% constant-currency adjusted earnings per-share growth (versus 5.6% on a reported basis in our model). Cash conversion was at a satisfactory 84% level (versus about 88% in our model). From a channel standpoint, the retail business increased volume at a 5.4% rate (6.8% in the fourth quarter), with the food-service channel recovering as expected (up 18% in the period and 10.1% in the fourth quarter, in line with recent disclosures by consumer packaged goods peers). We do not expect to materially change our fair value estimate after incorporating this largely in-line set of numbers. Shares are slightly undervalued.