Glanbia has had a very difficult 12 months, leaving its share price approximately 45% lower than where it stood a year ago.
This week those shares are trading below €10 each. Recently, analysts at Goodbody suggested they should be worth closer to €16 each, with those analysts saying that the sum of Glanbia’s three different divisions would be worth around €21 a share. For comparison, Glanbia at €10 a share values the company at €2.55bn, €16 a share values it at €4.09bn and €21 a share values it at €5.37bn.
In equity markets there is usually a good reason for a company to be trading so far below what it could potentially be worth. This week, Frankfurt-based Clearway Capital, a long-term shareholder of Glanbia, wrote a letter outlining where it sees the problems and what solutions it suggests to bring value back to the company and to its shareholders.
Structure
The first issue facing Glanbia is the structure of the company. It is divided into three divisions – Dairy Nutrition comprising cheese manufacturing and dairy ingredients, Health and Nutrition, a speciality ingredients business, and Glanbia Performance Nutrition, comprising the global consumer brands, including Optimum Nutrition. Clearway says in the letter that while each division may be successful in its own right, “they differ fundamentally in their commercial models, customers, capital needs, and strategic direction”, adding that “the separation between these business lines is more than thematic, it is economic, strategic, and increasingly unavoidable”.
Clearway says that Glanbia Performance Nutrition is likely worth, by itself, more than the total current value of Glanbia. Effectively, this would mean that investors are ascribing no value to the company’s health and dairy businesses.
Trust
According to Clearway, the speed and severity of the decline in Glanbia’s share price following the release of financial results for 2024 not only highlights investor disappointment with the company’s short-term performance, but also “the market’s broader loss of faith in the group’s strategy”.
The letter quotes analysts saying it will take time for Glanbia to rebuild investor trust in the company’s future prospects.
Glanbia attributed the underperformance in 2024 to elevated input costs, specifically high whey prices. Clearway said that this justification “stands in direct contrast to the longstanding justification of Glanbia’s complex corporate structure, namely, that the diversification of its business units would provide shareholders a natural hedge against precisely this type of volatility”.
Management at Glanbia have said that they expect a normalisation of whey prices later this year and into 2026. Clearway says it is “critical to recognise that the market is no longer willing to assign Glanbia the benefit of the doubt”, adding that the drop in valuation “is not due to cyclical headwinds or transient input cost inflation, it is structural”.
Change needed
Clearway says “the time has come to conduct a formal, board-led strategic review focused specifically on separating the businesses [within Glanbia] from one another”. Whether that separation happens through the sale of assets or a spin-off to shareholders of Glanbia Performance Nutrition and a US listing, or through a combination of measures, the advantages would be the same, according to Clearway: “Each of these paths would allow the distinct businesses to be valued on their own merits, unlock management focus, and invite capital markets to reward each for what they are rather than penalise them for what they are not.”
Clearway claims there is a broad shareholder consensus on the need for a decisive path forward.
Tirlán
Perhaps one of the most interesting things about the Clearway letter is who it is addressed to. If an investor is seeking significant structural change at a company, it would normally address those concerns to the board of the company.
Clearway has decided to address this letter to the board of Glanbia’s largest shareholder – Tirlán. While this may seem unusual in normal circumstances, it makes sense in the case of Glanbia. Tirlán is the company’s largest shareholder, holding an almost 30% stake in Glanbia, so it certainly would have the clout to effect change were it so minded.
Tirlán’s own long-term interests remain tied to the fortunes of Glanbia. Clearway’s letter says the share price drop for Glanbia since the 2024 peak has seen a loss of €710m of value for Tirlán, at a time when the co-op is seeking to establish an investment fund to help, as it told members last year, “to deliver for our farmer members today and for generations to come”.
Tirlán’s members also have a stake in the share price of Glanbia. They are expecting a spinout of shares in May. When they voted on that proposal in September, the average value per member was put at €24,604. The fall in the share price since puts that average at just over €15,000.
Comment
There is an old saying in markets that profit warnings come in threes. The first one highlights a problem, the second one comes as management struggles to deal with it and the third as the big decisions to deal with the problem are finally made.
This rule-of-thumb is not true in every case, but it does highlight that failure to deal with a problem early does nothing to make it easier to deal with in future. For Glanbia, it’s warning on input costs has seen a market reaction that seems to far outweigh the size of the immediate hit to earnings.
Perhaps the market has, as the letter from Clearway suggests, made up its mind that the challenges faced by Glanbia can only be met with significant structural change at the company. If that is true, then the company and its shareholders may be best served by undertaking that structural change now rather than waiting for more bad news, which would inevitably force that change.
For Tirlán, and the large number of its members who are already shareholders in Glanbia as a result of previous spinouts, there should be little to stop them pushing for that change, if they see it as necessary. The only interest they should have in Glanbia is to maximise the value of each share.
The next few weeks will be busy for Glanbia and its largest shareholder
The letter to Tirlán’s board comes just a week ahead of Glanbia’s annual general meeting, which is scheduled to kick off at 11am at the Killashee Hotel in Co Kildare on Wednesday 30 April. Glanbia will publish an update on its trading in the first three months of the year that morning.
Tirlán is also set to announce annual results for 2024 in the coming weeks and has its own AGM scheduled for 11am on Wednesday 7 May at the Lyrath Hotel in Kilkenny.
Both AGMs will give shareholders and members a chance to make their voices heard on what they think should, or shouldn’t, be done. In many cases, farmers will hold shares in both Glanbia and the co-op, allowing them plenty of scope to express any opinions.
The board of Tirlán may wish to get that feedback from members before making a decision on whether they should take any action.
A spokesperson for Tirlán said, when contacted by the Irish Farmers Journal, that the co-op had “no comment at this time” on the contents of the letter. A spokesperson for Glanbia declined to comment.
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