Ireland’s 10 food and drink companies yet again outperformed all other sectors on the Irish stock exchange, despite the overall Irish equity market (ISEQ) appreciating by an impressive 18.6% last year.

Such agribusiness share price appreciation (+42.6%) excludes the annual dividend payments which, when included, increase the overall returns by a further 2.5%.

Ireland’s agrifood sector has consistently grown its exports over the past decade, surpassing €9bn for the first time ever last year. This, along with Ireland’s future potential in the area, has been increasingly recognised by some of the world’s largest fund managers as they accumulate increasing stakes in many of Ireland’s agrifood companies.

Global fund managers such as Invesco, Fidelity, Blackrock and Prudential have progressively increased their stakes in many of Ireland’s quoted agrifood companies.

Agriculture’s wider economic contribution undervalued

The true extent of the wider economic contribution and wealth creation of agriculture and its associated agribusinesses is frequently undervalued.

While shareholder returns is just one such measure, there are many others, such as direct expenditure by the food sector in the Irish economy which is equivalent to almost 60% of sales. This compares with 21% for the rest of the manufacturing sector.

Therefore, every extra euro of food exported is putting 60 cent at a minimum back into the Irish economy.

In practical terms, and particularly in the context of job creation, local and regional economy input linkages, in terms of purchases of raw material, services and labour, have a far bigger impact on jobs and economic activity than macro growth figures such as gross value added (GVA) suggest.

This is because the agrifood sector buys over 80% of its inputs in the domestic Irish economy against around 15% for multinationals.

Furthermore, while profit levels are lower, and thus GVA is lower than in the multinational sector, there is much higher retention of profits from the agrifood sector.

Using Irish economic expenditure and retained profits as a measure of the impact on the Irish economy indicates that of the estimated €26bn turnover by Ireland’s agrifood sector in 2011, approximately €21bn is retained within the Irish economy. For example, of the €36bn turnover in the pharma sector, just €7.5bn remains within the Irish economy via spending and taxes paid.

Aryzta

Aryzta was formed in June 2008 following the merger of Irish-based IAWS and Swiss firm Hiestad, and while Aryzta’s share price was sluggish last year, it still delivered a very healthy return of 54.9% over the past three years. The group trades on a 2012 PE of 12.1 times and offers a dividend yield of 1.2%. Aryzta continues to deliver strong double digit margins (10.7% forecasted for 2012) and a very healthy 11.4% return on capital. Its most recent market update disappointed the market somewhat, given the benign trading conditions experienced by the group throughout Europe and the ongoing issue of input cost inflation. Aryzta are continuing to guide a 5-10% growth in underlying fully diluted earnings per share for the current full year.

Glanbia

Glanbia continues to be the ‘star pupil’ with shareholder returns up a massive 76.8% last year, and 199% over the past three years alone.

The removal of its Irish milk processing division into a joint venture that is majority controlled by Glanbia Co-op enhanced both its balance sheet and future funding and growth strategy, enabling it to further develop its highly lucrative nutritional arena which continues to grow globally at double digit rates.

Glanbia’s return on capital remains most impressive at 17.9% and while the group’s earnings will fall marginally this year, due to the removal of its dairy division, its operating margin will rise by 1%, which has underpinned the recent stock market re-rating.

C&C

C&C Group, a manufacturer, marketer and distributer of branded cider (eg Bulmers) and beer, have experienced extreme share price volatility over the past five to seven years.

However, in recent years, shareholder returns have powered back into positive territory, up 56% over the past year alone and up 64% over the past three years.

The company’s recent acquisition of the Vermont Hard Cider Company in America for $305m (€233m) offers the group new opportunities in the lucrative US market which has excited the stock market as seen by the recent increase in its 2012 PE ratio to 16.7 times.

Greencore

Long been the ‘black sheep’ in this portfolio of Irish agri-food companies, which saw the erosion of shareholder value since the mid 1990s, Greencore appears to have turned the corner under the stewardship of CEO Patrick Coveney.

Following the acquisition of Uniq in Britain during 2011 and Greencore’s two US acquisitions during 2012 (MarketFare and Schau) and their partnership agreement with Starbucks is expected to open up significant opportunities for Greencore, especially in the lucrative US convenience stores arena.

The share price rose by 102% last year and still trades on a modest 2012 PE of 8.3 times and offers a dividend yield of 4%. Greencore has strong dividend cover going forward.

FBD

FBD share price is up 55.4% last year, reflecting strong underwriting management, prudent cost containment and its loyal and profitable customer base that is the agrisector.

In addition, the removal of its Irish and Spanish property and leisure operation (Hotels) into a joint venture with Farmer Business Developments plc (Developments),which in turn owns 25.64% of FBD, and the removal off its balance sheet of the associated €60m in bank debt and €53m owed to Developments significantly enhanced the attractiveness of this stock to investors.

The exiting of Quinn with its flawed pricing model from the sector should also help.

Continental Farmers Group (CFG)

CFG is the youngest agrifood business listed on the Irish stock market, which listed back in 2011. Origin Enterprises retains a 24.3% stake in this business.

CFG is a diversified agricultural producer with significant farming operations in northern Poland and western Ukraine.

The group’s core business is crop production, comprising oil seed rape, potatoes, wheat, sugar beet and maize.

CFG represents a play on primary agriculture which has attracted increased attention from international investors.

Origin

Origin Enterprises, the on-farm agronomy company, in which Aryzta retains a 68% stake, reported operating profits of €69.7m for the 12 months ending 31 July 2012.

Despite increased volatility across all agri commodities, and with difficult farming conditions across its three main markets during 2011-2012 (Britain, Ireland and Poland), Origin’s upward trajectory of revenues and profits underlines its credentials as an attractive investment player, as does its decision to recommend a 36% increase in dividends late last year.

Its share price appreciated by 30.5% last year and by over 76% over the past three years.

As with CFG, this group’s fortunes are linked to primary agriculture and is increasingly attracting international investor attention.

The question remains what will Aryzta do with its majority stake?

Donegal Creameries

Following the sale of its liquid milk and stores business to Connacht Gold co-op last year, Donegal has further concentrated its efforts on its seed potato business, through their fully-owned subsidiary Irish Potato Marketing (IPM) where Donegal plan to become a global player in the seed potato business.

Investors have seen their returns fall in value by 49% over the past five years, while the group offers an attractive dividend yield of 4.9%.

Fyffes

Five-year returns are still down 43%, however the recoverery for Fyffes investors started in earnest last year, as the share price rose by 50%.

This stock trades on a 2012 PE of just 6.6 times and offers a dividend yield of 3.5%.

Kerry Group

Forever the symbol of consistency, Kerry investors have seen their investment grow beyond all expectations since it floated back in 1986, something akin to Jack’s giant beanstalk. With its share price up 87% over the past three years, and 42.7% alone last year, Kerry investors’ good fortune continues unabated.