Nomad Foods is Europe's largest frozen food company. It is not as well known as it should be because it is listed on the NYSE, headquartered in the UK, but the majority of revenues are in Euros. It also is trading at a lower multiple than it should based on improving fundamentals.
REPLAY VIDEO AND MATERIALS: CLICK HERE
There reasons to be LONG each with upside to current consensus expectations:
Sustained Organic Growth
Nomad Foods is well-positioned with share leadership in the markets it competes within the growing freezer category. In Western Europe, the market size is €27bn and has been growing 2% annually with limited cyclicality. Frozen foods are driven by secular trends in wellness, environmental consciousness, and convenience. The company has been outpacing its category. The market has not given Nomad Foods the multiple it deserves for its track record of organic growth, the stability of the category, and its competitive position.
M&A is a core strategy
In supplementing its organic growth, Nomad Foods has been adding Western European frozen food companies, extracting cost savings, investing in growth initiatives, and plugging them into its strategic framework. Even though it has the largest share in the markets it competes in, the categories are fragmented. Nomad could also diversify into European non-frozen packaged foods categories or in the US frozen category. It has very large markets to look for targets and is armed with an under-levered balance sheet.
COVID-19 calorie shift
Nomad Foods is poised to benefit from a shift in spending from food away from home to food at home. Grocery stores had the biggest stockpiling of food in decades ahead of government restrictions on outdoor movement as seen in Tesco's weekly sales in the following chart. Even after the lockdowns are eased, consumers will still consume more meals at home due to concerns over COVID-19 and the ensuing recessionary impact on consumers’ incomes. In the past month, consumers have had one of the largest trial periods of products in the grocery store giving Nomad Foods the opportunity to reach new customers and re-engage lapsed consumers. Online grocery still has a small penetration of the market, but it received a boost from the stay at home restrictions. Strong brands have greater share online, and the company's brands are often #1 or 2 in its markets.
