Nomad Foods: Stable Prospects, Fairly Valued

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Stable prospects for Nomad Foods (NYSE:NOMD) connected the backmost of an summation successful A&P investments, dependable maturation successful Europe’s frozen nutrient marketplace on with opportunistic enlargement to caller markets done a operation of inorganic and integrated strategies. Their valuation appears fair.

Company Overview

Nomad Foods is Europe’s starring frozen foods institution based connected nett income value. The company’s portfolio of frozen nutrient products includes fish, vegetables, poultry, meals, pizza, and crystal pick sold done retailers nether long-standing household names specified arsenic the “Bird’s Eye” marque successful the UK and Ireland, “Findus” successful Italy, France, Spain, Sweden, Switzerland and Norway, “iglo” successful Germany and different continental markets, “La Cocinera” successful Spain, "Ledo" successful south-eastern Europe and "Frikom" successful Serbia and North Macedonia. The bulk of the company’s products are successful the savory frozen nutrient marketplace wherever Nomad Foods’ marketplace stock is astir 18% according to Nielsen and Nomad Foods holds the fig 1 presumption successful sixteen European geographies.

Nomad Foods’ apical 6 markets (UK, Italy, Germany, France, Sweden, and Austria) which collectively correspond astir 80% of Europe’s savory frozen nutrient market, relationship for 70% of the company’s full revenues.

Nomad Foods, 10-K, FY2022

1H 2023 performance

1H 2023 revenues roseate 6.3% connected a reported ground (up 8.3% organically) to EUR 1.5 cardinal driven by pricing which helped offset measurement declines (management said the institution mislaid astir 1% worth stock successful Q2 2023 to backstage statement brands). Gross margins expanded 50 ground points to 28.6% helped by pricing actions and outgo power programs. Operating nett declined 13% YoY nevertheless it was up 8% aft adjusting for one-off non-operating expenses.

Near term, absorption is optimistic astir seeing tangible income measurement maturation and marketplace stock increases successful the 2H 2023 and 2024 connected the backmost of accrued A&P investments successful Q3 2023. Management expects A&P expenses to scope astir 4% of FY2023 sales, importantly higher compared to FY2022 erstwhile it was astir 3% of sales. Moderating ostentation is expected to minimize borderline pressure. FY2023 revenues are expected to turn successful the mid-single digits connected an integrated basis.

Improving proviso concatenation conditions should trim inventory stockpiling, and thereby easiness moving superior pressures and normalize escaped currency flows going forward; FY2022 escaped currency flows of EUR 224 cardinal is the lowest since FY 2018. 1H 2023 escaped currency flows of EUR 108.8 cardinal is much than treble the EUR 41.4 cardinal reported successful the aforesaid play past year.

Looking further ahead, prospects are stable. The company’s semipermanent show has mostly been accordant with revenues, profits, and currency flows mostly connected an upward trajectory implicit the past fewer years. There are reasons to spot continued maturation going forward. Europe’s frozen nutrient manufacture outlook is mostly unchangeable with the region’s frozen nutrient marketplace projected to turn successful the mid-single digits implicit the coming years. Additionally, the institution continues to grow marketplace penetration wrong Europe, leveraging connected its retail and organisation networks passim the region. Goodfella’s frozen pizza is presently being expanded beyond their accepted markets of the UK and Ireland and into different European markets, specifically France and Spain. The enlargement into France is opportune considering Nestle’s (OTCPK:NSRGY) troubles successful the state (following an E.coli outbreak astatine 1 of its frozen pizza factories, Nestle announced they would beryllium closing the factory, opening a spread successful the marketplace for players similar Nomad Foods).

Nomad Foods’ maturation strategy has besides included making bolt-on acquisitions of smaller companies and expanding them connected the backmost of Nomad Foods’ retail and organisation networks, arsenic good arsenic acquisitions for the purposes of geographic expansion. Their acquisition of Fortenova Group gives them entree to frozen foods brands Ledo and Frikom which are the starring brands by marketplace stock successful galore eastbound and cardinal European markets and supply a level to further grow into these markets.

Nomad Foods' indebtedness to equity, portion amended than rivals similar Nestle and Unilever, is not peculiarly low, but accordant currency travel procreation and decent involvement screen (5.2x) gives them immoderate flexibility (albeit limited) to proceed making smaller bolt-on acquisitions successful the longer term.

Risks

Stiff competition

As the biggest frozen nutrient institution successful Europe Nomad Foods enjoys standard advantages nevertheless frozen nutrient (particularly subcategories similar frozen vegetables specified arsenic peas and potatoes) is fundamentally a commodity merchandise successful a saturated marketplace with ample contention from backstage statement supermarket brands that person a terms vantage which whitethorn beryllium peculiarly applicable for consumers successful the UK and the euro country going guardant considering anemic medium-term economical maturation projections (roughly astir 1.5% for some UK and euro area) owed to reasons including vigor terms shocks, tighter financing conditions, and humble fiscal policy. Competitive pressures from cost-competitive backstage statement brands whitethorn dent Nomad Foods' fiscal performance.

Potential sanctions connected Russian seafood

Russia accounts for astir 40% of planetary whitefish drawback and up to 75% of the astir fashionable wild-caught food varieties and EU imports of Russian food person truthful acold remained beardown contempt the Russia-Ukraine struggle (European Union imports of Russian food were up 20% successful 2022).

Nomad Foods is the largest purchaser of Marine Stewardship Council certified wild-caught whitefish sourcing globally and portion the institution has been making efforts to diversify food sources, Russia remains a large root with the institution noting successful their latest yearly study that their food chiefly originates from wild-caught food successful the North Pacific predominantly from the U.S. and Russia. It whitethorn instrumentality a portion for Nomad Foods to trim their reliance connected Russian food and until then, immoderate sanctions imposed connected Russian food imports whitethorn beryllium detrimental to Nomad Foods’ fiscal performance.

Conclusion

Nomad Foods has a bargain expert statement rating.

Seeking Alpha

Taking the pursuing assumptions suggests Nomad Foods is worthy astir $2.8 billion, astir connected par with its existent marketplace headdress of $2.6 billion.

Long only, focused connected precocious prime businesses with economical moats and coagulated concern fundamentals. Sector and geography agnostic. Long word concern horizon. None of the articles represent concern advice.