Nomad Meals ($NOMD) is Europe’s main frozen meals firm. Its ERP backdrop may very well be a yummy alternative to get publicity to some family names in a strong and rising business.
Key Highlights
Nomad Meals is a portfolio firm with sturdy manufacturers within the frozen meals business
Regardless of its transitionary ERP issues the corporate reveals a robust development trajectory
Nomad Meals presently trades at a reduction making use of a conservative valuation mannequin
The Enterprise and the Business
As Warren Buffett famously stated, “Corporations which have the highest share of customers’ minds have each pricing energy and model loyalty, which lead to wealth creation for shareholders.” Nomad Meals is an ideal instance. Rising up in an Italian family, Captain Findus fish sticks have been all the time a staple in our weight-reduction plan—a outstanding achievement, contemplating how explicit Italians are about meals. This exemplifies the energy of Nomad Meals: an organization that, by way of a collection of strategic acquisitions, has constructed a compelling portfolio of family manufacturers, now commanding 20% of the European frozen meals market.
On prime of Findus, shaped in 1941 and marketed in Italy, France, Spain, Sweden, Switzerland and Norway, the opposite manufacturers are family names with lengthy histories and native heritage of their respective markets. The Birds Eye model was established in 1922 and is primarily marketed within the UK and Eire. The iglo model, based in 1956, has a longstanding historical past and is marketed in Germany and different continental European international locations. Ledo (established in 1958) and Frikom (established in 1975) are the lead manufacturers with sturdy heritage in south-eastern Europe.
Frozen meals merchandise are notably enticing as a result of they deal with vital world meals tendencies. Shoppers more and more want merchandise that permit them to organize meals shortly and with confidence and count on merchandise to be wholesome and good worth for cash. As well as, customers are more and more targeted on decreasing meals waste. Frozen meals merchandise can have all of those traits. They’re straightforward to organize, they scale back the necessity for synthetic preservatives, they’re usually higher worth for cash than chilled alternate options and so they scale back waste in any respect factors within the provide chain and in addition in-home (as a result of lengthy shelf life, and the convenience of portionability).
Nomad Meals – Investor Presentation
Competitors
The primary frozen meals producers in Europe are Nomad Meals, Unilever, Dr Oetker and McCain. Unilever instructions the ice cream market with manufacturers like Magnum, Ben & Jerry’s and Wall’s. Dr Oetker is known for its frozen pizzas, whereas McCain is the preferred model for frozen potatoes. There are additionally numerous personal labels, just like the grocery store chains, that provide low price frozen merchandise below their very own manufacturers.
Regardless of a aggressive setting, Nomad Meals is energetic in segments completely different from its branded opponents, the place it might probably command a superior market share. Nomad Meals product combine is closely skewed in the direction of protein and greens which account for 75% of its revenues. Its market share has laid the foundations of its aggressive benefit. Certainly, Nomad Meals advantages from economies of scale, long-term retail relationships, and a various product and geographic combine. Its well-established manufacturers give the corporate a robust model fairness technique, with main spontaneous model consciousness in a number of areas.
Furthermore, the corporate has optimized its sourcing technique. By working a centralized procurement and provide chain aligned with its geographic footprint, Nomad Meals successfully reduces distribution prices. It sources merchandise globally from a large community of suppliers, minimizing the danger of over-reliance on any single provider. Moreover, the corporate operates 18 manufacturing amenities strategically situated close to its important markets. This diversified manufacturing setup permits for higher logistics administration, balancing manufacturing prices with excessive customer support ranges.
Nomad Meals – Investor Presentation
Market
The consumption of frozen meals is backed by clear secular tendencies. The consumption of frozen meals cuts down meal preparation, giving households again extra time for what issues most. Frozen meals is cheaper in comparison with their chilled equivalents. This issues for 93% of European customers, who modified their method to store to handle expenditures in a price of dwelling disaster. Lastly, frozen meals are considerably extra sustainable each for retailers and last customers. Certainly, they permit to scale back waste for his or her important longer shelf life.
During the last ten years the European savory frozen meals market has grown round 3% whereas experiencing an enormous spike in class demand all through the COVID pandemic, pushed by the aforementioned capacity to handle world meals consumption tendencies. Moreover, the quantity of area that frozen meals as a class occupies inside the grocery retail setting is comparatively steady as a result of mounted quantity of freezer area on the retailer that isn’t uncovered to reductions in shelf area in favor of different classes or codecs, as might be the case in shelf-stable components of the retailer. Anyway, these different meals classes grew solely 2% in the identical time frame.
Strategic Alternatives
In comparison with their US counterparts, Europeans devour a lot much less frozen meals per capita, favoring contemporary choices as a result of misconceptions about their poor high quality. Per capita consumption of frozen meals within the US is eighteen.2 kg, whereas the European common is round 8 kg. Controlling for the dietary variations between European and US customers, this development continues to be important and will slender within the close to future. This opens up compelling development alternatives for European producers.
Nomad Meals development initiatives focus round strategic acquisitions, aimed toward figuring out and executing on enticing development alternatives to consolidate their core product combine. Nomad Meals possesses strong acquisition experience, supported by a robust administration workforce and entry to capital.
The corporate can be targeted on its core product classes – fish, greens, and poultry – which account for 67% of its branded retail gross sales. Efforts to reinforce these classes embody bettering product high quality, refreshing packaging, and optimizing in-store execution by way of higher product assortment, show methods, and promotions. Given its present comparatively low penetration at poultry and potato markets in European international locations, Nomad Meals has a lot area for additional development.
Lastly the corporate desires to extend margins and money flows by way of disciplined price administration and provide chain optimization. This consists of initiatives like lean manufacturing, manufacturing unit footprint optimization, and enhancing procurement productiveness, in addition to growing stronger promotional applications, worth structure, and commerce phrases. Though over the previous a number of quarters Nomad Meals’ profitability has been below stress, margins stay steady and should improve sooner or later, offering extra cash for distributions to shareholders.
Dangers
Nomad Meals – Investor Presentation
There are some dangers related to a profitable execution of Nomad Meals’ plans. For instance, an elevated consolidation within the frozen meals market may scale back the gross sales of the corporate. On the similar time, an inflationary setting may scale back the flexibility of the corporate to go by way of worth will increase to customers. Anyway, the vertically built-in operations of Nomad Meals give it an edge within the advanced pipelines of chilly provide chains in opposition to its opponents in addition to higher worth management capabilities.
Lastly, Nomad Meals depends on gross sales to a restricted variety of giant meals retailers. The meals retail segments are extremely concentrated, with Nomad Meals’ prime 10 retail prospects accounting for about 32% of its annual income. Ought to these retailers carry out poorly, the corporate’s enterprise may very well be adversely affected. Regardless of this being a critical risk, Nomad Meals managed to extend its revenues every year during the last ten years, that means that its gross sales channels and advertising and marketing capabilities can face varied challenges.
Nomad Meals Valuation
However what’s the worth of Nomad Meals?
I’ll use the Residual Earnings Mannequin to worth the enterprise, detailed in Accounting for Worth by Stephen Penman (Columbia Enterprise Faculty Publishing, 2010). Some main advantages from utilizing this mannequin are the low variety of inputs, low quantity of hypothesis added and strict connection to the fundametals.
I’ll assume EPS of €1.76, €1.91 and €2.09 for FY 2024, FY 2025 and FY 2026. These are probably the most up to date estimates of the monetary analysts following the corporate. Plus, I’ll assume DPS (Dividend per Share) of €0.60, €0.62 and €0.64, according to the corporate’s dedication. I’ll assume a ten% Price of Capital, that’s affordable contemplating the present risk-free rates of interest. I may also assume a 0% development fee for the RE (Residual Earnings). This strategy has two key advantages: it considerably reduces the danger of overpaying for development and aligns with market concept, which means that residual earnings are inclined to diminish over time. Given a BPS (Guide Worth per Share) in FY 2023 of €17.39, we are actually able to compute the worth per share of the corporate:
The BPS for FY 2024 and FY 2025 is computed including the EPS and subtracting DPS from earlier 12 months BPS. We compute ROCE (Return on Widespread Fairness) because the ratio of EPS and former 12 months BPS. The Residual Earnings are computed subtracting the Price of Capital from the ROCE, permitting us to concentrate on the Financial Income of the corporate. The result’s then multiplied by the earlier 12 months BPS. Lastly, we low cost future Residual Earnings with a ten% Price of Capital, assuming no development for the longer term intervals, and we add it to the bottom BPS.
As we will see the ensuing worth per share is €18.32, exhibiting roughly a 17% premium from the present worth of Nomad Meals. This valuation is extremely conservatory, that means that it could be enough for the corporate to ship their commitments to see this appreciation mirrored within the inventory worth.
Conclusion
The present ERP headwinds have led to a downward revision of steerage for the tip of 2024. This follows a difficult interval for the frozen meals business, marked by inflationary pressures and the cost-of-living disaster. Regardless of these difficulties, Nomad Meals not solely maintained its profitability but in addition elevated its revenues—a powerful testomony to the corporate’s resilience and energy.
With its industrial flywheel gaining momentum and its enterprise mannequin supported by clear secular tendencies, the transitional challenges confronted by this outstanding firm could current a lovely alternative for traders looking for publicity to a rising business inside the European market.
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