Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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Equity Bottom-Up

<div class="content-highlight"><h2>The outsourcing partner to the food &amp; beverage industry presents an attractive investment case.</h2></div><hr><p>Through its taste and nutrition business, we believe wide-moat <a href="https://www.smartkarma.com/entities/24913" target="_blank" data-smartkarma-citation="entities:24913:1">Kerry Group PLC (KYGA LN)</a> is one of the best-positioned ingredient suppliers in the fragmented food ingredient industry. Its unique integrated solutions approach leads to the holistic partnerships, client switching costs, and intangible assets that support our wide moat rating. In our view, the firm is poised for multi-faceted growth, benefiting from its position as the largest emerging markets player with the most room for expansion, its exposure to durable food and beverage trends, and its favorable client mix. We believe these factors and industry fragmentation give Kerry ample consolidation opportunities. We see sustainable volume growth translating into moderate but sure margin improvements, forecasting 25 basis points of expansion over the next five years. Based on its scalable business model and track record, we posit that Kerry will stick to its successful long-held M&amp;A strategy, featuring bolt-on acquisitions at reasonable prices. Although our midterm expectations are more conservative than management's midpoint guidance and consensus (excluding M&amp;A), Kerry is still trading at roughly a 5% discount to our EUR 110 valuation, with its relative valuation looking similarly favorable. We think the discount reflects market underappreciation of the specialty ingredients market's long-term potential and Kerry's role in it, and that the margin of safety is adequate for a stable performer. Despite the discount, we see a 12% further upside as long-term penetration opportunities in emerging markets could more than triple the company's addressable market in the next 25 years.</p><hr><h2>Key Takeaways</h2><ul>
<li>Kerry is one of the best-positioned ingredient suppliers due to its leadership in the fragmented food ingredient industry and exposure to the most dynamic parts of the market.</li>
<li>Changing consumer habits are a tailwind for Kerry's customized ingredient and consulting offerings.</li>
<li>Kerry's broad portfolio and strong acquisition history (in terms of prices paid and integration) reflect exemplary stewardship of shareholder capital and suggest that future acquisitions will add value.</li>
<li>We expect market strength, emerging market growth, sector consolidation, and ensuing margin expansion to drive best-in-class profit growth for Kerry.</li>
<li>We think the market underappreciates the specialty ingredients market's long-term potential and Kerry's role in it, and despite a roughly 5% trading discount to our valuation, our assumptions are conservative.</li>
</ul>

The outsourcing partner to the food &amp; beverage industry presents an attractive investment case.Through its taste and nutrition business, we believe wide-moat Kerry Group PLC (KYGA LN) is one of the best-positioned ingredient suppliers in the fragmented food ingredient industry. Its unique integrated solutions approach leads to the holistic partnerships, client switching costs, and intangible assets that support our wide moat rating. In our view, the firm is poised for multi-faceted growth, benefiting from its position as the largest emerging markets player with the most room for expansion, its exposure to durable food and beverage trends, and its favorable client mix. We believe these factors and industry fragmentation give Kerry ample consolidation opportunities. We see sustainable volume growth translating into moderate but sure margin improvements, forecasting 25 basis points of expansion over the next five years. Based on its scalable business model and track record, we posit that Kerry will stick to its successful long-held M&amp;A strategy, featuring bolt-on acquisitions at reasonable prices. Although our midterm expectations are more conservative than management's midpoint guidance and consensus (excluding M&amp;A), Kerry is still trading at roughly a 5% discount to our EUR 110 valuation, with its relative valuation looking similarly favorable. We think the discount reflects market underappreciation of the specialty ingredients market's long-term potential and Kerry's role in it, and that the margin of safety is adequate for a stable performer. Despite the discount, we see a 12% further upside as long-term penetration opportunities in emerging markets could more than triple the company's addressable market in the next 25 years.Key Takeaways
Kerry is one of the best-positioned ingredient suppliers due to its leadership in the fragmented food ingredient industry and exposure to the most dynamic parts of the market.
Changing consumer habits are a tailwind for Kerry's customized ingredient and consulting offerings.
Kerry's broad portfolio and strong acquisition history (in terms of prices paid and integration) reflect exemplary stewardship of shareholder capital and suggest that future acquisitions will add value.
We expect market strength, emerging market growth, sector consolidation, and ensuing margin expansion to drive best-in-class profit growth for Kerry.
We think the market underappreciates the specialty ingredients market's long-term potential and Kerry's role in it, and despite a roughly 5% trading discount to our valuation, our assumptions are conservative.


Kerry's Recipe for Tasty & Healthy Returns: Go Small and East