Monday 23 April 2018

Aga owner Middleby out to cook up a storm in residential market

Aidan Donnelly is head of equities in Davy Private Clients.
For disclosures, visit www.davy.ie/AidanDonnelly
Aidan Donnelly is head of equities in Davy Private Clients. For disclosures, visit www.davy.ie/AidanDonnelly

Aidan Donnelly

Originally invented in 1922 by the Nobel Prize-winning Swedish physicist Gustaf Dalén, Aga cookers were imported to Britain in 1929 and were manufactured there under licence in the early 1930s. The cast-iron parts were cast at the Coalbrookdale foundry in the 1940s, where they were still made by the Aga Rangemaster Group until November 2017.

Given such a British legacy and its heritage on these islands, you might expect that the brand is owned by some long-established British engineering company. Up until a few years ago you would have been right, with the AGA Foodservice Company actually listed on the London Stock Exchange.

However, in September 2015 it was announced that the company was being bought by the Middleby Corporation, following another takeover approach by white goods manufacturer, Whirlpool. While the Middleby Corporation, based in Elgin, Illinois, is a leading global manufacturer of cooking and food preparation equipment, its focus is in commercial and institutional kitchens and restaurants.

Within the commercial kitchen market, Middleby holds leading positions in nearly all of the product categories in which it competes. New restaurant openings and menu-driven changes have driven demand for restaurant equipment. Underlying this, there are several industry trends also playing a part.

The most important of these trends is the balance between eating outside the home to inside. Over the last few years in developed countries, the move has favoured eating out, with the swing factor being the millennial generation preference for buying rather than preparing their food. Just look at the success of apps such as 'Just Eat' and 'Grub Hub' to see the evidence of this. As disposable income levels increase in emerging markets, we can expect to see the growth rates for eating out pick up as well.

The company maintains material exposure to international markets with penetration in under-served markets a primary growth opportunity. Middleby's ability to serve leading global restaurant chains is enhanced by the company's extensive international service network.

Minimum wage rates and property rents are increasing in restaurants in all major regions and restaurant owners are looking for ways to improve efficiency.

Middleby's chief executive Selim Bassoul will tell you that Middleby stands for "seconds and inches" - quicker cooking in smaller spaces. While automation will be key to reducing labour costs, having appliances that are multi-functional or reduce the footprint of the kitchen will allow restaurant owners to have more front-of-house space or operate out of smaller premises - reducing rent costs. With the acquisition of Aga, the residential market has become more significant for the company. Given the higher price point that the company focuses on, its message in this market is the application of commercial kitchen technology to the residential kitchen. Growing the business organically will remain the top priority for management but acquisitions represent a key supplement to this growth. The company boasts an impressive track record of integrating acquisitions, and driving profitability and returns higher in the acquired businesses.

As we look to the future, the question might not be 'What's cooking?' and more a case of what's it cooking on?

Aidan Donnelly is head of equities in Davy Private Clients. For disclosures, visit www.davy.ie/AidanDonnelly

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