Position monitor update (VWE)
We are making several adjustments within our position monitor:
- Vintage Wine Estates moves up to our #2 long idea. We expect an acquisition to be announced this year. We do not model future acquisitions, but it factors into EPS power and valuation.
- Constellation Brands moves a spot lower with our projections not aligned with consensus.
- Nomad Foods moves down the list; further detail is provided below.
- Grocery Outlet moves up one spot as visibility improves at the margin with California reopening. The company also opened its first store in New Jersey last week as its East Coast expansion is underway.
- On the short side, Molson Coors moves lower on our list with muted expectations and easy near-term comparisons.
Frozen demand down in the U.K. despite lockdown (NOMD)
For the week ended June 5th, CPG demand in the U.K. decreased 1% YOY, improving from -4% in the previous week. Since anniversarying the pandemic, CPG demand in the U.K. has been down 2% or better in nine of the last 13 weeks. Demand for frozen food was down 7% YOY in the week ended June 5th, a big improvement from the prior weeks -20%. The U.K. is Nomad Foods’ largest market at 30% of sales before the acquisitions. Yesterday, the U.K. delayed the reopening of the economy or “freedom day” by four weeks to July 19. The continued restrictions benefit food-at-home consumption, but frozen food has underperformed the overall category.
We are moving Nomad Foods lower on our position monitor. The company remains on our long list over a longer duration outlook. However, the setup is not favorable in the short term, with difficult comparisons relative to consensus expectations. Frozen food demand surged during the pandemic last year, making organic growth particularly difficult to achieve for the remainder of the year.
Current EPS estimates do not include the Fortenova acquisition, but Nomad Foods will close on it after the seasonal peak results limiting the contribution. The current valuation based on consensus estimates of 16.2x 2021 EPS and 12.6x EBITDA is at the upper end of its historical range but attractive to the group multiple.
Food at home vs. away from home (KR)
The pandemic reversed a decade-long streak of food away from home, taking share from food at home retailers. Food at home’s share fell from over 60% in 1992 to under 50% around 2014-2015. Monthly revenue for food retail sales hit its peak in April 2020, reaching 70% of monthly food spending while foodservice’s share fell to 30%. In March 2021, food retailers still had a 12%, or $100B, lead over restaurants.
According to FMI, the average weekly grocery spending per household increased from $121 through February 2020 to $161 in late March/early April 2020. It then moderated to ~$135 a week until the first week of October, when it increased to $146. In comparison, the average weekly spend was $113 per week in 2019. FMI’s survey found that 58% of consumers said they eat at home more since the pandemic, and 49% cook or prepare their meals more often. Pre-pandemic behavior has returned for many, and it may not take that long for the 12% gap for food at home to disappear.
