KERRY GROUP PLC BUSINESS VALUATION (STUDY CASE)

It passed some time since I’ve witten the last article.Today I wish to present a short and quick valuation of Kerry Group Plc,I will not insist on performance measures like (profitability,liquidity and risk.)

In this article I ‘ll focuse on’’Intrinsic Value calculation,but before to start I wish to say something about the company.Kerry Group Plc develops ,manufactures and deliveres technology based ingredients flavours for the food and beverage industry.

After the researches that I’ve made studying public irish companies ,I consider is the best by far public irish company.It’s paying  their shareholders with increasing dividends since 1987 .

In investing is important to understand and try to establish what company’s shares really worth.

We can defined intrinsic value simply: ‘’It is the discounted value of cash that can be taken out of a business during its remaining life.’’ - Warren Buffet CEO Berkshire Hathaway INC

Extract Cash Flow Statement 2015 (mil euros)

Cash Flow from Operating activities

Depreciation and amortization
Accounts receivables	(11.20)
Inventory	45.40
Account payables	21.60
Other working capital	9
Other non-cash items	656.50
Net cash provided by operating activities	721.30
Free Cash in flow
Operating Cash flow	721.30
Capex	(248.40)
Free Cash Flow	472.90

Assumptions:

Starting cash flow :472.90

Expected growth rate:           8,20%

Discount rate              :            9,85%

Projected cash flow 2017-2021(mil E)

2017	511.67
2018	553.63
2019	599.03
2020	648.15
2021	701.30

(Assuming that the company will follow the expected growth rate 8,20%)

                                        INTRINSIC VALUE CALCULATION  

YEAR	CASHFLOW	DISCOUNT FACTOR 9%	PV
2017	511.67	0.917	469.20
2018	553.63	0.842	465.62
2019	599.03	0.772	462.45
2020	648.15	0.650	455.84

                                                                                                                         NPV  :    2312

NPV     :                                                                                       2312

YEAR 5 NPV*12     :                                                                    701

Total cash,cash equivalents and short term investments:  8415.6

Total  Intrinsic value:                                                                 :        11 993

No of outstanding shares 31 Dec 2016                                   :176 mil

Total Intrinsic Value per share                                                  :68.14/euros

Actual Stock Price                                                                        :69.81/euros

RGV  (RELATIVE GRAHAM VALUE)                                             :0.97

INTRINSIC VALUE/STOCK PRICE   :68.14/69.81=O.97

AN RGV LESS THAN ONE INDICATES THAT THE STOCK IS OVERVALUED AND SHOULD NOT BE BOUGHT.

MARGIN OF SAFETY:                                                      2,45%

 1-    STOCKS CURENT PRICE/STOCK INTRINSIC VALUE

CConclusions:   Despite that Kerry Group Plc is an amazing company my advice is to not buy this stock because his intrinsic value is less than curent stock price.2.45 % margin of safety is not enough to buy the company in this moment at 50 euros/share or less is ideal.

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