Tag: European Market
Business Strategy and Outlook
Kerry Group has evolved from its humble roots as an Irish dairy co-operative into a global flavour and nutrition powerhouse serving the food, beverage, and food-service sectors. The wide economic moat rating is supported by intangible assets and switching costs stemming from the company’s wide range of ingredient solutions and strong service component, which contributes to partnership like client relationships. Kerry works with clients to find market opportunities that can be successfully delivered, in contrast to its flavour and fragrance competitors, which take a more transactional strategy that focuses on delivering bespoke taste solutions utilizing their considerable research and development resources.
These holistic collaborations with a range of customers from various end-use segments and geographies produce essential market and consumer insights that enrich Kerry’s service offering, a virtuous cycle at the heart of the company’s considerable competitive advantages. Post coronavirus, Kerry has unique exposure to the most dynamic segments of the global food and beverage business, since two thirds of its revenue comes from local and regional food and beverage clients and approximately one fifth is derived from the food-service market. Taste and nutrition accounts for over 92% of sales and is the primary growth engine for Kerry. The worldwide food ingredient and taste industry is fragmented, with projected sales of more than $70 billion and a growth rate of 2% to 3%. Kerry is one of the industry’s 10 major firms, which accounts for less than 50% of industry revenue. Kerry’s other section is a somewhat undifferentiated dairy business, after the recent sale of the company’s meals and meats division.
Financial Strength
Kerry is in strong financial health. The company has moderate financial gearing, with net debt/2021 adjusted EBITDA of 1.9 times, and consistently generates good amounts of free cash flow, though at a lower level than F&F companies and the leading consumer staple companies in general. Aggregate acquisition spending of around EUR 1.25 billion through the next five years based on the company’s strategy to lead consolidation in the fragmented food ingredient and flavour market. Due to Kerry’s acquisitive nature and above-average capital spending, discretionary cash generation (free cash flow will average close to 5% of sales over the next five years) is moderate. Typically, Kerry spends 3%-5% of sales on capital expenditures and around 6.5% (based on taste and nutrition sales) on average on bolt-on acquisitions. Although the former is to remain in line, the capital spending on acquisitions normalising a bit over the next five years, but still remaining adequate driven by the company’s core strategy to further develop its integrated solutions offering through a broader geographic presence and a wider range of ingredient solutions, catering better to both the food-service and developing markets. The dividend policy looks conservative, given a fiscal 2021 payout ratio of about 25% despite moderate financial gearing and good free cash flow generation. It appears Kerry may be deliberately keeping sufficient financial flexibility in case it decides to undertake a significant, transformational acquisition mostly paid in cash, though past experience.
Bulls Say’s
- Kerry’s integrated solutions model is hard to replicate due to its high service component (based on decades of experience) and wide range of solutions offered.
- Kerry is one of the largest firms in a fragmented flavour and specialty food ingredient industry, which provides ample opportunities to consolidate and gain meaningful scale.
- Ingredient sales are expected to grow faster than food or beverage sales because of outsourcing, secular trends like clean labelling and health and wellness, and a rising number of applications and technologies (driving volume growth).
Company Profile
Kerry Group is a global leader in taste and ingredient technology servicing the food, beverage, and pharmaceutical sectors. The company’s more than 150 manufacturing facilities supply clients in 150 countries with 18,000 food and ingredient items. It gets around 80% of its revenue from developed countries and 20% from the developing world, servicing a wide range of end-use sectors, such as meat, meals, snacks, dairy, drinks, and pharmaceuticals. Kerry has expanded through a combination of organic development and multiple tuck-in acquisitions.
(Source: MorningStar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy and Outlook
Burberry Group has transformed from an essentially licensed/wholesale business model with inconsistent regional product and brand presentation into a strong monobrand luxury player with a consistent message, good control over distribution, and a global presence. Burberry is the category leader in its trench coat business, enabling it to generate high operating margins in this category through scale and pricing power. It benefits from a high degree of control over distribution, which allows it to correct operational mistakes more quickly, showcase the brand at key locations in global capitals, avoid excessive discounting, and retain stronger negotiating clout with wholesale partners. Although prior-year retail expansion and rent inflation have weighed on margins, Burberry has built an excellent global platform from which to execute. As space expansion is essentially flat and new demand comes from existing stores and online platforms, operating margins and cash flows should be boosted.
Burberry was one of the first in the market to invest in digital front and back-office systems. It aggregates customer data across channels and regions, which helps it target marketing campaigns better and can act as an input in product development and merchandising. While demand for luxury products is linked to GDP growth and an increasing number of wealthy and middle-class people, Burberry and its leather goods and apparel peers could make existing customers buy more through product innovation. In the long run, growth should come from China, consumption should be supported by growing employment in high-wage sectors.
Financial Strength
Like many of its luxury peers, Burberry is in a strong financial position with net cash of GBP 1.2 billion as of the end of March 2022. Burberry is strongly positioned to weather the COVID-19-related crisis and potential demand slowdown through high inflation. Burberry is a cash-generative business and has historically funded growth investments from operating cash flows. Burberry will continue doing so and be able to reward shareholders through dividend and buybacks.
Bulls Say’s
- Over the past 10 years, Burberry has built a strong global brand with control over its supply chain, distribution, and marketing. It also substantially reduced discounting, which should support the brand’s luxury image.
- New designer collections have been positively received (full-price comparable sales up by double digits on 2019 level), which should boost performance once pandemic restrictions are removed.
- Cash flow margins should improve through operating expenditure leverage and capital expenditure reduction, as the brand returns to growth off the same store base.
Company Profile
Burberry, a British luxury monobrand, which is more than 160 years old, is best known for its outerwear and signature plaid. It has a global presence with 29% of revenue generated in Europe, 46% in Asia, and 25% in North America. The Chinese are Burberry’s most important customers, accounting for more than 30% of sales. Apparel contributes about 63% of sales.
(Source: MorningStar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy and Outlook
Wolters Kluwer has over the past decade or so undergone a wholesale reorganization of its business, taking it from being the leading print publisher of professional information materials to being one of the largest players in the potentially much larger digital information services space. This change has come at a cost, however, with the company spending over EUR 2 billion on net acquisitions over the period in order to position itself better in the digital information services market. Wolters’ legacy print business, which is declining at a high-single-digit rate each year, has proved to be a drag on the overall business, with organic revenue growth improving to 4.3% in 2019, the highest level in over a decade, while the proportion of print revenue fell to a new low of 9% in 2020.
The inflection point for Wolters Kluwer has now been reached, with print revenue now at a single-digit contribution to group revenue, down from 52% in 2004. With print revenue now posing less of a drag on the group, and the company’s more scalable elements gaining traction with clients, the organic revenue growth should increase linearly, albeit modestly from here. Recurring revenue across the group has also increased materially and currently stands at 80% of total revenue for 2020, increasing the stability and predictability of the underlying revenue base. These factors have also resulted in material improvements in operating margins across key verticals. Examples of this can be seen in core products such as UpToDate in the clinical solutions business, which is currently growing at double-digit rates, driving operating margins in the health business to all-time highs. As the company moves up the value chain in the information services it offers to clients, further enhancement to margins across a variety of business activities is eminently possible. However, there are inherent risks in Wolters’ strategy, as the company has moved from a print publishing business with relatively few competitive pressures to a digital information business in which it must keep innovating to stay ahead of existing and new competitors.
Financial Strength
Wolters Kluwer’s net debt/EBITDA ratio is 1.9 times, very much at the lower end of its historical range and comfortably below its 2.5 times long-term target. This is broadly in line with the industry average and it would be considered reasonable, particularly given the relative stability in the company’s revenue base. Wolters is broadly diversified (by geography and business lines) and has made significant progress increasing its recurring revenue streams, which now stand at 80% of total revenue. The company’s debt maturities are long-term-weighted, with only around 20% of its total debt maturing in the next two years. Wolters primarily returns its excess capital to shareholders via a progressive dividend policy, with a payout ratio averaging close to 50% over the past decade. Given the lack of large acquisitions and the strong cash flow, the company has also been active in buying back shares over the past few years.
Bulls Say’s
- Wolters serves professionals in highly specialized niches, in which it generally holds a number-one or number-two market position.
- Digital is more scalable than physical distribution, so the mix shift toward software solutions will help the firm to reduce expenses and expand margins.
- Wolters serves numerous niches where there are few reputable alternatives, and pricing tends to be more rational among the major players as a result.
Company Profile
Wolters Kluwer is a Europe-listed global information services company. It operates across four distinct business segments serving a wide array of clients: health (26% of 2020 sales), tax and accounting (31%), legal and regulatory (23%), and governance, risk, and compliance (20%). Within these divisions, Wolters aims to be the industry leader in a variety of niche, higher-value services
(Source: MorningStar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
