Saturday 26 May 2018

The time is right to invest in Glanbia's home-grown success story

Under CEO Siobhan Talbot, Glanbia has proven adept at identifying transformational trends. Photo: Tony Gavin
Under CEO Siobhan Talbot, Glanbia has proven adept at identifying transformational trends. Photo: Tony Gavin

David Holohan

Glanbia is one of Ireland's most impressive home-grown success stories. From very humble beginnings through the formation and combination of several co-ops from the 60s onwards, it has grown significantly over the intervening decades, diversifying into attractive high-growth areas.

Initially focused on the Irish and European dairy markets, the organisation grew to become the fourth-largest dairy processor in Europe and the fourth-biggest cheese manufacturer in the world by the end of the 90s. Shortly after, Glanbia shifted its focus away from commodity exposure and instead focused on higher margin, less volatile product categories.

The management team at Glanbia, led by Siobhan Talbot, have proven themselves to be adept at identifying transformational trends in the global nutrition market and have grown the organisation through well timed, value-enhancing acquisitions.

The eureka moment for Glanbia came from whey protein. Whey is left over when milk is coagulated during the cheese manufacturing process. Historically, it was viewed as somewhat of a waste product and was used to feed pigs.

However, in an increasingly body-conscious society and one in which health and wellness became a lifestyle choice, whey protein offered a very attractive source of protein for fitness enthusiasts. As one of the largest cheese manufacturers in the US, Glanbia had a distinct advantage in the burgeoning performance nutrition market.

Management, seeing the growth opportunity, moved to acquire several of the largest brands in the nascent but rapidly growing performance nutrition market, beginning with Optimum Nutrition in 2008, followed by BSN in 2011, and both Nutramino and Isopure in 2014.

Glanbia now operates from 32 countries, has over 6,000 employees and boasts a market capitalisation of more than €4bn.

The business is split into three segments. The largest is Glanbia Performance Nutrition, encompassing the protein products and making up just under half of the group's profits. Global Nutrition is roughly a third of profits and is focused on the US cheese operations and nutritional solutions that include vitamins and minerals. Finally, Glanbia's joint ventures, which include a 40pc stake in Glanbia Ireland, makes up the remainder of group profitability.

Management have been able to seamlessly deliver strong growth for shareholders between 2010 and 2016, growing profits at a compound annual growth rate of 12.5pc over the period. This excellent performance resulted in profits jumping from €163m to more than €330m over the period.

Despite the fundamentals of the company remaining very strong, its share price has come under pressure over the past year, declining from €18 to €14, representing a decline of over 20pc from the high. The share price performance can partly be explained by the weakness of the US dollar versus the euro, which is a negative for Glanbia, given the company's significant operations in North America.

There continues to be large growth opportunities ahead for management to capitalise on. The recent share price weakness offers an attractive entry point to a longer-term growth story with one of the best management teams in the country at the helm.

David Holohan is chief investment officer at Merrion Capital

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