During May the Irish equity market outperformed all of its European counterparts with a rise of more than 7.5 per cent, to bring the year-todate (YTD) return from the index to a very creditable 9.5 per cent. The market has been led higher by strong performances in most of the leading Irish companies. The market's largest constituent, Elan, has again been the best performing share so far this year and now stands over one-third higher than its level at the beginning of the year.

Other shares to gain include CRH, Ryanair and the two main banks, with YTD gains ranging between 5 per cent and 13.5 per cent.

Even the Eircom share price has managed to rise this year with a gain of 7.3 per cent in the five months to the end of May.

The majority of Irish shares outperformed within their respective global sectors during May and so far this year.

For example, the Irish food sector has risen by 9.1 per cent during the second quarter compared with a rise of 5 per cent for the European food sector.

With the notable exceptions of Kerry Group and IAWS the stock market performance of Irish food stocks has been a major disappointment to investors. Over most time periods the sector has sharply under-performed the overall market. For example, over the past year the sector has underperformed the ISEQ by over 20 per cent, while over five years the relative under-performance has been a staggering 48 per cent.

Therefore, at first glance the odds must be high that this most recent rise in food companies share prices will prove to be another false dawn. However, the fact that share prices have risen in the face of the problems created by the foot-and-mouth crisis is impressive. The two strong companies - Kerry Group and IAWS - have developed strong international businesses that are capable of delivering attractive long-term returns to shareholders. Therefore, these two companies seem capable of continuing to at least perform as well as the overall market.

The key determinant of whether the overall food sector can sustain a recovery will be the future performance of the weaker companies, namely, Greencore, Glanbia and Golden Vale. The share prices of the latter two companies have bounced sharply over the past three months - the Glanbia share price has virtually doubled over this period. Admittedly, the share prices of both companies had reached artificially depressed levels partly due to the foot-and-mouths care. Nevertheless, there is growing evidence that restructuring measures undertaken at Glanbia and Golden Vale are beginning to bear fruit.

The Greencore share price has remained weak in recent months and its key issue is how well it integrates the UK Hazelwood acquisition.

All three companies have price-earnings ratios (PERs) between six and seven times earnings. These very low stock market ratings are a function of the generally low profit margins that are typical of these businesses and the fact that all three companies have had their own internal structural problems. In sharp contrast Kerry Group and IAWS trade on PERs of 14 and 16 respectively.

Given the low profit margins associated with the business segments that Golden Vale, Glanbia and Greencore focus on, their PERs will always be at a discount to those afforded Kerry and IAWS. However, if the former three companies can continue to successfully restructure their respective operations, then this ratings gap can be at least partially closed.

This would then create a firm foundation for a rare period of out-performance from the Irish food sector.