Kerry and C&C cushion weak updates by waving cash as Irish share buybacks near €4bn

Nutrition giant Kerry Group, whose shares have been under the cosh for the past six months, accompanied a weak trading statement this week with something for investors to nibble on to comfort themselves.

The group said on Thursday that it plans to start a €300 million share buyback programme next month. It would mark the first time it has been in the market buying its own shares since 2007, just before the financial crash.

It did little to distract the market from the disappointment that its full-year earnings per share growth is now forecast to come at the bottom end of its previous 1-5 per cent guidance.

The warning comes as Kerry’s Dairy Ireland unit grapples with price deflation, and as its much more significant global taste and nutrition division continues to be dogged by food manufacturers scaling back orders for ingredients as they run down existing stock levels.

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Shares in the company fell 3.6 per cent on the day, bringing their decline over the of 12 months to 23 per cent.

This year has seen a marked pick-up in share buybacks by Irish companies, echoing a trend across Europe. European public limited companies have long lagged US peers on the stock repurchasing front

Meanwhile, Irish-based but London-listed cider and beer maker C&C sought to take the sting out of uninspiring interim results on Thursday by announcing it plans to distribute as much as €150 million to shareholders over the next three years by way of dividends and “capital returns” – which is seen as code for share buybacks.

This year has seen a marked pickup in share buybacks by Irish companies, echoing a trend across Europe. European public limited companies have long lagged US peers on the stock repurchasing front.

All told, Irish-based plcs are on track to spend a record amount of almost €4 billion buying their own shares this year – driven, variously, by the belief that their shares are undervalued by the market, a concern about investing money on expansion or mergers and acquisitions (M&A) at a time of economic uncertainty, or a lack of other big ideas among boards.

The tally, according to Irish Times calculations, is more than double the total outlay on Irish buybacks in each of the past two years.

Share repurchases have underpinned an otherwise lacklustre performance by equity markets this year, with the Iseq All Share Index up only 10 per cent so far this year, and the MSCI All Country World Index having rallied just 4 per cent – following a 20 per cent slump by global stocks last year.

UK investment bank Liberum noted in a report this week that there has been an “extraordinary” shift in the mindset of European companies in recent years, as they move from mainly relying on dividends to reward shareholders to increasingly using buybacks to support their share price.

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However, it comes at a time when US groups are scaling back, after companies in the S&P 500 index spent a record $923 billion (€875 billion) on such transactions last year. Bank of America stock market strategists noted on Tuesday that US stock buybacks – a major driver of US equities in the past decade – slumped 26 per cent in the three months to June and 3 per cent in the third quarter.

The dampened enthusiasm in the US has been partly down to a new 1 per cent tax on buybacks that took effect this year. This was brought in against the backdrop of political and academic criticism that such programmes artificially inflate share prices and earnings per share (and, by default, executive bonuses, which tend to be largely linked to both) instead of the money being spent on long-term growth.

Much of the US activity in this area had been funded by debt in the past decade, amid ultra-low interest rates in the wake of the global financial crisis. The Bank of America strategists reckon this is now at risk as the era of free money is over.

The Irish figure has been driven, however, by a group that has been buying from a position of improving balance sheet strength: CRH. The building materials giant continues to be based in Dublin, even after defecting from the Irish stock market last month as part of a quotations rejig that saw its main listing move from London to New York.

CRH committed earlier this year to spending $3 billion buying back shares in 2023. It follows the group having spent $8 billion on dividends and buybacks in the past five years – a figure that is dwarfed by $10 billion forked out on acquisitions and $2 billion on capital investment over the same period.

Bank of Ireland spent €126 million mopping up its own shares in the market this year, while AIB spent €215 million buying back some of the Government’s shares from the time of its crisis-era bailout

However, the company managed to lower its debt burden to 0.9 times earnings before interest, tax, depreciation and amortisation (EBITDA), compared to 1.8 times at the end of 2017 – as it grew earnings and raised cash from selling off unwanted and underperforming assets.

Housebuilders Cairn Homes and Glenveagh Properties, nutrition group Glanbia, and life sciences investment firm Malin Corporation have also been active in the market this year – as have agri-services company Origin Enterprises and Grafton Group, the DIY retailer and builders merchants group.

Bank of Ireland spent €126 million mopping up its own shares in the market this year, while AIB spent €215 million buying back some of the Government’s shares from the time of its crisis-era bailout.

CRH is expected by analysts and debt ratings agencies to scale back on stock repurchases in the coming years. But the banks, carrying growing amounts of excess capital as rising rates boost earnings, would like to think they’re only getting going.