Kerry Group has a bright future but must increase its spending on acquisitions, according to a report from Goodbody Stockbrokers.

The broker says Kerry, which has outperformed its global peers, is undervalued and that its shares, currently trading at €15, should rise 17 per cent to €17.50 within a year.

"Kerry Group has produced the highest earnings per share and share price returns of any food company globally since its advent to the stock market in 1986," according to Mr Liam Igoe, food stock analyst with Goodbody.

Earnings per share have grown 17.6 per cent a year in that time, with the share price rising 20.3 per cent annually over the period.

"The pace of growth has also been more consistent than its peers, not having suffered any year of a decline in earnings," he said

While the bulk of Kerry's €2.2 billion of acquisitions since 1986 have been on the ingredients side, Mr Igoe argues that its genesis as a tightly managed and aggressive food company gave it a competitive edge in this new area.

Goodbody says Kerry could spend €1.8 billion over the next five years and still report earnings in excess of five times interest payments.

The broker says Kerry is most likely to pursue a series of small to medium-sized acquisitions over the next two years.

The analyst sees plenty of scope for further moves in the higher margin area of food additives, into which Kerry has ventured through Mastertaste. Despite its leading presence in the ingredients market, Goodbody also sees room for Kerry to expand into new products.

"For acquisitions to make an impact on future growth, our model suggests the spend needs to be stepped up to more than €300 million a year," Mr Igoe says.

However, with deals in the sector getting progressively more expensive, Mr Igoe says Kerry management's ability to extract value out of acquisitions will become ever more important.