Sunday 18 March 2018

Commodity prices will hit Glanbia

THE market was underwhelmed by Glanbia's 10-month interim management statement, with the share price barely budging despite CEO John Moloney's forecast of a 20 per cent increase in earnings (after-tax profits) per share for 2011.

After adding more than 60 per cent from the beginning of 2010 to May 2011, the share price has since trended downward. At the current level of just over €4.40 the shares are down over 10 per cent on last May's peak, with the interim management statement failing to revive investors' enthusiasm.

On the face of it, this seems unfair. If the company meets Mr Moloney's forecast then it will deliver after-tax profits in the region of €120m and earnings per share of 45 cent. This means that Glanbia is trading on the equivalent of about 10 times after-tax profits, which even in these depressed times seems cheap. So why isn't the market impressed?

Glanbia has been a major beneficiary of soaring global food commodity prices, with butter prices up almost 50 per cent and dried milk prices up about 20 per cent over the past two years.

With the global economy heading into a renewed recession, investors are betting that the next big move in dairy commodity prices, and Glanbia's profits, will be down.

Sunday Indo Business

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