Kerry Announces Planned Divestment of Sweet Ingredients Portfolio; FVE Maintained

In a press release on Jan. 11, Kerry Group announced that it had started exclusive negotiations to sell its sweet ingredients portfolio to IRCA for a consideration of EUR 500 million (EUR 375 million in cash and EUR 125 million in an interest-bearing loan note). The transaction implies an enterprise value/EBITDA multiple of 12.2 times and enterprise value/sales multiple of 1.2 times, both lower than Kerry's market multiples as of Jan. 11 closing prices. According to Kerry, the sweet ingredients business generated EUR 405 million (about 5% of group) revenue and EUR 41 million in EBITDA (about 3% of the group) in fiscal 2022, so it's not material to the group's results. Given that some of the end markets the sweet ingredient portfolio serves are growing at lower-than-group-average rates, we expect the transaction to be incrementally accretive to taste and nutrition's organic growth aspirations (from 10 basis points to 20 basis points) and EBITDA margins (about 40 basis points). The potential sale is expected to close in the first half of 2023 while proceeds are expected to be used for general corporate purposes and continuous refinement of the taste and nutrition portfolio. We believe that the planned transaction is a step in the right direction, as Kerry continues to look for ways to further improve its organic growth algorithm and enhance margins. We do not expect to change our EUR 109 fair value estimate and wide moat rating. At current levels shares look cheap.