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U.K. Frozen Food Sales Accelerate - 8 27 2020 11 10 31 AM

U.K. Frozen Food Accelerates (NOMD)

For the week ended August 15, total CPG index levels in the U.K. grew 5% compared to the prior year, as seen in the following chart. Edible categories increased 10%, outpacing non-edibles at +7%.

The frozen category increased 25%, accelerating for the third consecutive week. Frozen food even outperformed alcoholic beverages, the strongest category during the pandemic, which was up 21%. The U.K. is Nomad Foods' largest market at 31% of sales.

The frozen category has generally outperformed other grocery categories in Western European countries. Still, the magnitude has been less than in the U.S. This is due to a lower share of food away from home consumption pre-pandemic in Western Europe.  

Nomad Foods previously said 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, but trends have remained steady in August.

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 continues through September 9. The company's tender offer highlights the strong cash flow the company is generating, a strong balance sheet, as well as a signal that investors should not expect a sizeable 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. 

U.K. Frozen Food Sales Accelerate - hg4