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UK Groceries And Frozen Food Rebound - 8 13 2020 10 34 55 AM

For the week ended August 1 total CPG index levels in the UK grew 5% compared to the prior year as seen in the following chart.

Edible categories increased 10%, outpacing non-edibles at +3%. The frozen category increased 15%, accelerating from a weak -1% last week.

The only category performing better than frozen food was alcoholic beverages up 25%, accelerating from +10% the prior week. Fewer people are traveling abroad in the UK due to travel restrictions which should boost CPG sales.

The U.K. is Nomad Foods' largest market at 31% of sales. Nomad Foods said last week that sales in July grew double digits, similar to June. Management’s guidance is for organic sales growth of HSD% for the year and MSD% for Q3.

July is the smallest month of Q3 for the company and management expects retail sell through of frozen food to decelerate in Q3. Shipments are still trying to return inventory levels at retail to normal levels, because it was unable to meet demand in Q2.

The company’s tender offer for $500M of shares between $23 and $25.50 began Tuesday and will continue through September 9. The company’s tender offer highlights the strong cash flow the company is generating, strong balance sheet, as well as a signal that investors should not expect a large transformative transaction.

Investors should be comfortable that they own a European frozen food company with steady organic growth prospects. We don’t believe the growth prospects and lower risk profile of the company is reflected in the EV/EBITDA valuation of 10.8x consensus estimates.

Nomad Foods remains a Best Idea Long.

UK Groceries And Frozen Food Rebound - hg