With its roots in Irish dairy farming, Glanbia is a European holding that we first took a position in during 2010. After the financial crisis, Irish stocks were shunned by investors, which left a pool of attractively valued opportunities for those who were prepared to look. When we first invested, Glanbia was a vertically integrated dairy products business. With a history in Irish milk production, it had evolved the business through acquisition and organic investment into cheese manufacturing and specialist products that had synergies with its dairy heritage. This included being the large scale, low-cost producer of mozzarella cheese for pizzas in Europe and American cheese in the US and, through the acquisition of Optimum Nutrition, the leading brand in whey protein powder. This product formed the base of the Company’s Global Performance Nutrition (‘GPN’) business. The stock was lowly valued and we could see profit recovery in the core business coming from improving dairy prices, which at the time were depressed. Ireland has a competitive advantage in dairy due to its low-cost, year-round production of milk. We could also see structural growth starting to come through in the GPN business from the increasing trend to health and wellness and market share gains in their cheese division. The shares consequently performed very well as profits rose strongly and the shares re-rated. We sold our position at the end of 2017 after making handsome profits.
This was not the end of the story, however. The company remained on our watch list, but the shares started to underperform as profit growth slowed. Arguably, the company had grown too quickly and needed a period of investment in the business structure, whilst the competitive environment had evolved to become more challenging, with a change, for example, in the sales channel mix of the GPN business, away from traditional bricks and mortar specialty retail towards online, driving margins lower in the process.
Eventually, the valuation pull-back prompted us to take a more detailed look again at the prospects for Glanbia. In 2022 we met the management team and it was clear that the company had made significant progress in recent years. They had exited their Irish dairy business, whilst utilising their intellectual property to build-up an impressive specialist ingredients business (‘Glanbia Nutritionals’). This sells its products and know-how across a wide spectrum of food and beverages customers and has grown its share of Group profits successfully by way of bolt-on acquisitions. The company has become less capital intensive and the GPN business supply chain has been enhanced through a process of manufacturing footprint rationalisation, while there is now a broader spread of performance and lifestyle nutrition brands and a better go-to-market strategy. Optimum Nutrition is now the established global market leader at the premium end of the whey powder market, with new product formats being developed to build further on this position. Valuation is lower than when we sold out of the stock in 2017 and looks very attractive relative to the broader consumer branded products peer group. Performance has been good since we reinvested in the company last year, but we think there is plenty to go for from here.